UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  Form 10-KSB

(Mark One)

[x]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

                   For the fiscal year ended December 31, 2005

[ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

               For the transition period from ________to ________

                        Commission file number 331-30158A

                         Xstream Beverage Network, Inc.
                         ------------------------------
                 (Name of small business issuer in its charter)

                  Nevada                                      05-0547629
                  ------                                      ----------
      (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                      Identification No.)

       3511. W. Commercial Blvd, Suite 209
       Fort Lauderdale, Florida                                  33309
       ------------------------------------                      -----
       (Address of principal executive offices)                (Zip Code)

Issuer's telephone number   954-598-7997

Securities registered under Section 12(b) of the Exchange Act:

       Title of each class           Name of each exchange on which registered
       -------------------           -----------------------------------------
               None                                 not applicable
        (Title of each class)

Securities registered under Section 12(g) of the Exchange Act:

                                      none
                                (Title of class)


<PAGE>

      Check whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act [ X ]

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [x] No [
]

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [   ]

      Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act YES [ ] NO [ X ]

      State issuer's revenues for its most recent fiscal year. $10,226,235 for
the 12 months ended December 31, 2005.

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such common
equity, as of a specified date within the past 60 days.  The aggregate market
value of the common equity held by non-affiliates computed at the closing price
of the registrant's common stock on March 31, 2006 is approximately $14,320,885.

      State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date.  As of March 31, 2006
35,802,211 shares of common stock are issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

      If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which  the  document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) of the Securities Act of 1933 ("Securities Act").  Not Applicable.

      Transitional Small Business Disclosure Form (check one):  Yes [ ]  No [X]

                                       2

<PAGE>
       CERTAIN CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

       Certain statements in this annual report contain or may contain forward-
looking statements that are subject to known and unknown risks, uncertainties
and other factors which may cause actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These forward-looking
statements were based on various factors and were derived utilizing numerous
assumptions and other factors that could cause our actual results to differ
materially from those in the forward-looking statements. These factors include,
but are not limited to, our ability to implement our strategic initiatives,
economic, political and market conditions and fluctuations, government and
industry regulation, interest rate risk, U.S. and global competition, and other
factors. Most of these factors are difficult to predict accurately and are
generally beyond our control. You should consider the areas of risk described in
connection with any forward-looking statements that may be made herein. Readers
are cautioned not to place undue reliance on these forward-looking statements
and readers should carefully review this annual report in its entirety,
including the risks described in "Risk Factors." Except for our ongoing
obligations to disclose material information under the Federal securities laws,
we undertake no obligation to release publicly any revisions to any forward-
looking statements, to report events or to report the occurrence of
unanticipated events. These forward-looking statements speak only as of the date
of this annual report, and you should not rely on these statements without also
considering the risks and uncertainties associated with these statements and our
business.

       When used in this annual report, the terms "we", "our", and "us" refers
to the terms "XStream," " we," "our," and "us" refers to XStream Beverage
Network, Inc., a Nevada corporation, and our subsidiaries.

       All share and per share information contained herein gives proforma
effect to the 1:20 reverse stock split of our common stock effective July 19,
2004.

                                       3


<PAGE>

                                     PART I


ITEM 1.      DESCRIPTION OF BUSINESS

OVERVIEW AND BUSINESS STRATEGY

       We develop, market, sell and distribute new age beverage category natural
sodas, fruit juices and energy drinks.  Following our acquisition in April 2003
of Total Beverage Network, our focus has been to build a network of small to
medium sized beverage distribution businesses, with an emphasis on the East
Coast of the United States.  Our goal is to become a leading distributor of
beverage products through multiple distribution channels.  Since our acquisition
of Total Beverage Network, we have acquired additional beverage distribution
companies together with a natural juice company and certain intellectual
property rights related to other beverage names.

       Our business strategy is to complete our network of small to medium sized
beverage distributors in major markets throughout the United States,  as well as
expanding our base of proprietary value-added brands currently competing in
various aspects of the new age beverage industry.  Our success is dependent on
our ability to make these additional acquisitions and then to effectively
integrate their operations into our company.  We believe that we will generate
stronger than industry average margins by selling both our own proprietary
brands as well as third party brands that are dependent upon our multi-market
distribution network.  Our belief, which is based upon the experience of our
management, is that as our distribution network grows, this expanded
distribution network may give us some leverage to obtain better pricing and
promotional deals from third party brand owners who may be willing to offer
reduced pricing in exchange for increased distribution capabilities.

       For fiscal 2005 and 2004 approximately 95 % and 96%, respectively, of our
revenues were derived from distribution of third-party brands with the remaining
approximately 5% and 4% attributable to sales of our propriety products.

OUR MARKET SEGMENT

       Our activities are focused in the new age and alternative beverage
segments of the beverage market.  New Age or alternative beverages are
distinguishable from mainstream carbonated soft drinks in that they tend to have
less carbonation and are made from natural ingredients. As a general rule, three
criteria have been established for such a classification:

       *     relatively new introduction to the market-place;
       *     a perception by consumers that consumption is healthful when
             compared to mainstream carbonated soft drinks; and
       *     the use of natural ingredients and flavors in the products.

       The new age beverage category includes non-carbonated ready-to-drink iced
teas, lemonades, juice cocktails, single serve juices, ready-to-drink iced
coffees, energy drinks, sports drinks, soy drinks and single-serve still water
(flavored and unflavored) with beverages, including sodas, that are considered
natural, as well as sparkling juices.  Brand name products which are part of
this beverage category include natural juices and juice drinks such as Odwalla,
Naked Juice and Snapple, sports and energy drinks such as Gatorade and Red Bull,
bottled water and enhanced waters such as Evian and Vitamin Water, and ready-to-
drink teas such as Arizona Iced Tea.


                                       4


<PAGE>
       The new age beverage category is the fastest growing segment of the
beverage marketplace according to Beverage Marketing Corporation
(www.beveragemarketing.com), a company founded in 1972 which is a supplier of
information, consulting and financial services specializing in meeting the needs
of the global beverage industry. According to the 2004 State of the Industry
report issued by the Beverage Marketing Corporation, sales in 2003 for the new
age beverage category of the market are estimated at approximately $14.1 billion
at wholesale, representing a growth rate of approximately 5.9% over the revised
estimated wholesale sales in 2002 of approximately $13.3 billion.  Growth in the
category is attributed to consumer interest in more variety, healthier
alternatives to carbonated soft drinks, and more new product activity by the
major beverage manufacturers including Coca-Cola and Pepsi Cola.

OUR PROPRIETY PRODUCTS AND DISTRIBUTION ACTIVITIES

       Our proprietary brand portfolio is directed to consumers who prefer new
age beverage products to traditional carbonated soft drinks such as Coca-Cola,
Pepsi and 7-Up.  The new age beverage category is attractive to us because it is
a growth segment of the beverage market and we believe that consumers will pay
more for these products than carbonated soft drinks.

       Currently, our proprietary products include:

YOHIMBE ENERGY DRINK      Yohimbe Energy Drink is an energy drink similar in
                          taste and appearance to the market leader, Red Bull,
                          which is sold in 250ml cans.  The principal point of
                          difference is the addition of extract of "yohimbe", a
                          botanical believed to be associated with improved
                          blood supply to the muscles and a positive impact on
                          human libido.   Sales of Yohimbe Energy Drink
                          represented less than  1% and  approximately 2%,
                          respectively, of our total revenues for the fiscal
                          years ended December 31, 2005 and 2004.

CHINESE ROCKET FUEL       Launched in the first quarter of 2005, Chinese Rocket
                          Fuel is also an energy drink that is similar in taste
                          and appearance to the market leader, Red Bull.  The
                          principal point of difference is the addition of
                          extracts of Chinese herbs including Panax Ginseng and
                          Schizandra. Unlike Red Bull and Yohimbe, Chinese
                          Rocket Fuel is sold in 16 fl. oz. (476 mls) cans and
                          competes in this segment with energy drink brands such
                          as Hansen's Monster and Coca Cola's Rock Star.  Sales
                          of Chinese Rocket Fuel represented less than 1% of our
                          total revenues for the fiscal years ended December 31,
                          2005.

MAUI JUICE COMPANY        The products include a line of natural juices and
                          juice blends that contain no artificial ingredients,
                          preservatives or added color.   The product range is
                          currently only available in Hawaii and includes seven
                          traditional Maui Juice flavor varieties, including
                          Noni Lemonade, Ginger Blast and Spirulina Smoothie,
                          all of which are sold in 16 ounce and 32 ounce plastic
                          bottles, and three new products: Passion Fruit Guava
                          and Orange Juice, Pineapple Orange and Guava Orange
                          that were launched in June of 2005  Because these
                          products have a limited shelf life, the product is
                          sold exclusively through cold cabinet channels where
                          natural juices are found.  Sales of Maui Juice Company
                          products represented approximately 3% of our total
                          revenues for the fiscal year ended December 31, 2005.


                                       5


<PAGE>
SQUEEZE                   Squeeze is a line of traditional carbonated soft
                          drinks, sometimes referred to as "Gourmet Sodas"
                          that are sweetened with cane sugar and have natural
                          flavor systems. This line of seven flavor varieties
                          is sold in "Old Fashioned" 12 ounce glass bottles.
                          Sales of the Squeeze line of products represented
                          less than 1% of our total revenues for the fiscal
                          year ended December 31, 2005 following its launch in
                          the fourth quarter of fiscal 2004.

       The primary focus of our distribution effort is directed towards retail
outlets such as convenience stores, delicatessens, gas stations, bars,
restaurants and hotels. The effective display and promotion of beverage products
in refrigerated display cabinets (cold cabinets) is key to a successful business
in these outlets. We rely upon point of sale display and promotion to increase
customer awareness of our products. As our brands generate increased consumer
awareness and consumer demand, distribution to larger retailers, such as grocery
stores and warehouse clubs, and wholesalers will become more critical to our
continued market penetration.

       Through our network, we also distribute a wide variety of beverages,
alternative and new age beverages, energy drinks, juices and non-carbonated
sodas, vitamin waters, specialty and nutrition drinks and non-alcoholic beer. We
actively seek to acquire distribution rights for products we believe show strong
growth potential. At December 31, 2005 we had approximately 20 beverage
suppliers. Third-party brand name products currently distributed by us include:

       AriZona ice teas                       Dannon
       FIJI mineral water                     Switch
       Glacier Lake water                     Vermont Pure
       Hansen's Natural beverages             Skae Beverages
       Martinelli's juices                    SPA Mineral Water
       IZZE sparking juices
       Vernor's soda                          Apple & Eve
       Clearly Canadian water                 Welch's
       Crush                                  Tazo teas
       Brick House                            Guinness non-alcoholic beer
       SoBe

       We are a party to distribution agreements with a number of beverage
manufacturers which set forth the terms and conditions of our distribution
rights of those products.  These agreements grant us either exclusive or non-
exclusive distribution rights for certain territories and our ability to
distribute that company's products are limited to sales made in those specific
areas.  In some instances we have the right to appoint sub-distributors within
our prescribed territory. We do not presently have any sub-distributors and have
no present plans to establish any sub-distributors.  The terms of these
agreements are generally for one year with automatic annual renewals providing
we are meeting our minimum distribution levels of the brand in question.
Historically we have met the various minimum order requirements and anticipate
that we will continue to meet these terms in the future.  We also distribute
Glacier Lake water on a non-exclusive basis in the Maryland, District of
Columbia and Northern Virginia areas under an oral agreement with the beverage
manufacturer.  This distribution relationship, which represented approximately
4.5% of our revenues for each of the fiscal years ended December 31, 2005 and
2004, can be terminated at any time.

SEASONALITY

       Sales of ready-to-drink beverages are somewhat seasonal, with over 60% of
our sales expected to occur in the second and third calendar quarters.

                                       6


<PAGE>
PRODUCT MANUFACTURING

       We currently manufacture the Maui Juice Company products in our facility
in Hawaii.  The plant is located in Kahalui on the island of Maui and is
equipped with essential blending and fruit processing equipment.  In May of
2005, we moved our Hawaiian operations to a larger facility on Maui. The
additional space and FDA/ USDA clean rooms in the new facility will enable us,
in the future, to automate our current labor intensive manufacturing operations
and provide added security for our production processes. The new facility will
also permit us to increase our production capacity as demand for these products
increase in future periods.

       We rely on third party manufacturers to produce our Yohimbe, Chinese
Rocket Fuel and Squeeze branded products.  The third party manufacturers use our
proprietary formulations and flavor ingredients in the production of these
products.  At the time of production, one of our chemists observes the product
manufacture and production run, tests the finished beverage product and the
package integrity.

       In the case of unique flavor ingredients, we obtain the raw materials for
the manufacture of our products from several sources and arrange for the direct
delivery of these raw materials to the third-party manufacturer.  For raw
materials commonly used in the manufacture of beverages similar to our products,
such as sugar and citric acid, we obtain these directly from the third party
manufacturers to take advantage of cost savings available through bulk purchases
by the third party manufacturer. We normally pre-pay for the manufacture and for
the packaging materials.  We own the finished inventory which is shipped to our
warehouses upon completion.

       We believe that there are several primary suppliers of raw materials
within the U.S. In addition, we believe that there are many manufacturers in the
U.S. that could manufacture any product we choose to produce. With the possible
exception of PET bottles for future Maui Juice Company products, we do not
anticipate having contracts with any entities or persons committing such
suppliers to provide the materials required for the production of our products.
We believe raw materials are plentiful worldwide.

NEW PRODUCT DEVELOPMENT PROGRAM AND RESEARCH AND DEVELOPMENT

       The new age beverage category growth is largely sustained by the constant
addition of new products, brands and brand extensions. An integral part of our
strategy is to develop and introduce innovative products and packages. The
development time from the inception of the concept through product development
and testing to the manufacture and sale of the finished product is several
months. Not all new ideas make it through consumer research. To the extent that
we have sufficient capital, we intend to more actively pursue the research,
development manufacture and distribution of beverage products. During fiscal
2004 and fiscal 2005, we spent approximately $25,000 and $15,000 respectively on
new product and package development.The acquisition of the Maui Juice Company
brand has opened a research and development project to formulate new flavors for
the existing cold cabinet range in Hawaii. Specifically in 2005, we introduced a
not from concentrate, fresh squeezed orange juice and three new high juice
content, juice blend products: Passion Fruit Guava and Orange Juice, Pineapple
Orange and Guava Orange that were launched in June of 2005. We have also
developed a new line of Maui Juice Company brand shelf stable products which we
intend to introduce on the U.S. mainland later in 2006. We are unable at this
time to predict our research and development expenses for fiscal 2006.

OUR GROWTH AND ACQUISITION STRATEGY

       We believe that the evolution and growth of virtual soft drink brands or
brands whose owners do not possess manufacturing or distribution assets, coupled
with a nationwide consolidation of distribution by the three major soft drink
companies, Coca Cola, Pepsi and Cadbury Schweppes, has created a unique business
opportunity in the area of beverage sales and distribution.  Until recently,
most major metropolitan areas in the United States had at least one strong,
independent distributor of beverage product.  Typically these operators carried
a national

                                       7


<PAGE>
brand of beer, cola and a juice line, had extensive coverage of their territory
and controlled considerable brand assets such as vending machines and coolers.

       The formation of Coca Cola Enterprises and then The Pepsi Bottling Group
began the demise of the independents whose fate was sealed when Cadbury
Schweppes began buying up strong, independent brands such as Snapple, Dr Pepper,
Seven Up and Mistic and running them through a few strong regional distribution
companies, such as S.E. Atlantic in the southeast U.S.  The former strong
independents have consolidated and acquired many smaller competitors. Most of
the surviving small distributors are under-resourced, entrepreneurial operations
with no core brand business and inadequate infrastructures.

       It is within this group of companies, distributors with solid management
but without the means to grow, that we hope to identify potential acquisition
targets.  Our business objective is to market a full range of proprietary new
age brands.  To achieve this goal, we are acquiring and developing brands and
products that we believe are appropriate and desirable for target consumers, as
well as acquiring a network of beverage distribution companies. Our strategy is
to complete our network of small to medium sized beverage distributors in major
markets throughout the United States. We believe that we will generate stronger
than industry average margins by selling value-added proprietary brands and
third party value-added brands that are dependent upon our multi-market
distribution network.  We also believe that the acquisition of beverage
distribution companies will give us access to our target customers as well as
enabling us to earn revenues by distributing a portfolio of third party brands.

       We believe that our acquisition strategy is key to our ability to grow
our company.  We have identified over 1,000 beverage distribution companies
nationwide that meet our acquisition profile of annual sales revenues between
$2,500,000 and $5,000,000.  These distributors are ideal for future growth
programs in the smaller metropolitan markets.  For the larger markets such as
Washington D.C. and New York, we are seeking an acquisition target in the
revenue range of $5,000,000 to $10,000,000.  An added benefit of a network of
operations is the added leverage that multiple market operations bring when
negotiating with the third party brand owners.

       Our ability to complete additional acquisitions, however, is limited to
available capital.  Because of our relatively small size and the limited trading
in our common stock, we believe that the consideration to be paid in additional
acquisitions will be a combination of cash, equity and debt.  As of the date
hereof, however, we are not a party to any agreement for any additional
acquisitions.  We will be competing with many other companies in executing our
acquisition strategy and, as a result of our small size and present lack of
capital for use in acquisitions, we are at a disadvantage and we cannot assure
you that we will be effective in implementing this strategy.

OUR HISTORY

       We were organized under the laws of the State of Nevada on February 1,
1989, under the name East End Investment, Inc. for the purpose of engaging in
the business of investing and all other lawful businesses.  We have undertaken a
number of name changes during our history.  In November 1989 our name was
changed to The Theme Factory, Inc., in March 2001 our name was then changed to
the Geyser Group, Ltd., in September 2001 we changed our name to Xstream
Beverage Group, Inc. and in October 2004 we change our name to Xstream Beverage
Network, Inc.

       Effective March 9, 2001, we executed agreements to acquire 100% of
AquaPure International, Inc., a Nevada corporation, and 100% of Water Star
Bottling, Inc., a Wyoming corporation, both in exchange for shares of our common
stock.  AquaPure was organized in July, 1999 to acquire operating spring water
companies through financing and business combinations. Water Star bottled and
marketed spring water from a cold water geyser located in the Bridger/Teton
National Forest, Wyoming and it marketed fruit flavored spring water nationally.
On September 14,

                                       8


<PAGE>
2001 the parties mutually agreed to rescind these agreements and the shares of
our common stock issued in these transactions were returned to us and cancelled.

       In September 2001 we acquired 100% of the issued and outstanding capital
stock of Power Beverage Corp. from its stockholders.  Power Beverage was
organized in Florida in September 2001 to acquire and operate specialty beverage
companies and it had no revenues at the time of the transaction.

       On April 30, 2002 we entered into an agreement to acquire 100% of Buzzy's
Beverages, Inc. in exchange for shares of our common stock.  Buzzy's was a ready
to drink ice cold coffee manufacturer located in California.  As a result of
Buzzy's inability to provide us with audited financial statements, we rescinded
the agreement prior to the issuance of any consideration.

       On August 26, 2002 we entered into a stock exchange agreement to acquire
100% of Dark Dog Sale & Retail Vertriebe Gmbh, an Austrian company which
marketed an energy drink in Europe.  The transaction was terminated prior to
closing.

       In 2002 we also signed a letter of intent to acquire 90% of Florida
Brewery, Inc.  In anticipation of closing this transaction, we deposited shares
of our common stock which were to be issued as consideration with a third party
escrow agent pending closing of this transaction.  Prior to closing, the seller
terminated the letter of intent and the shares previously deposited in escrow
were returned to our company and cancelled.

       On April 9, 2003, we closed on the acquisition of two companies. We
acquired all of the issued and outstanding shares of common stock of Total
Beverage Network, Inc., a Florida corporation, in exchange for 50,000 shares of
our common stock. Following the closing of this acquisition, its two
shareholders, Jerry Pearring and Barry Willson, become officers and directors of
Xstream. Also on April 9, 2003, Total Beverage Network, now our wholly owned
subsidiary, acquired substantially all of the assets of Universal Florida
Beverage Distributors, Inc., a Florida corporation, in exchange for the issuance
to Universal of 27,500 shares of our common stock. Universal is a distributor
with distribution routes in the South Florida area. This distribution operation
served to launch the Yohimbe brand and enabled our operations and marketing
management to gain first hand knowledge of the brands' introduction. We will use
our South Florida operation as a similar test market vehicle for future new
brand introductions.

       On May 1, 2003, our wholly owned subsidiary, Beverage Network of
Connecticut, Inc., acquired substantially all of the assets of Finish-Line
Distributors, LLC, a beverage distributor located in Bristol, Connecticut, in
exchange for $152,593 and 800,000 shares of our common stock.  In addition, we
have paid Finish-Line Distributors an additional $50,000 in cash plus 5,000
shares of our common stock for meeting performance criteria set forth in the
acquisition agreement.

       In August 2003, we acquired the customer lists of American Natural Water
Distributors in exchange for 550 shares of our common stock and a note in the
principal amount of $12,000.

       On January 14, 2004, our wholly owned subsidiary, Xstream Brands, entered
into an Assignment of Trademark with Squeeze Beverage, Inc. for the assignment
of all of its rights and interests in the trademark "SQUEEZE" for carbonated
flavored soft drinks and seltzer water, including all variations thereof such as
any spelling, formatives, phonetic variations and stylized designs of the same
and all goodwill associated therewith.  As consideration we issued 20,000 shares
of our common stock to Squeeze Beverages, Inc.  We valued the transaction at
$48,000.

       On March 1, 2004 our wholly owned subsidiary, Beverage Network of Hawaii,
Inc., acquired substantially all of the assets and assumed certain liabilities
of Pacific Rim Natural Juice Company, Inc. Through this acquisition, we acquired
all of the production assets and personnel used in the manufacture of Maui Juice
Company products.  We were also able to transfer the lease

                                       9


<PAGE>
of the factory used in the manufacture.  As consideration we issued the seller
12,500 shares of our common stock and advanced them $15,500.  We valued the
transactions at $45,500.

       Also on March 1, 2004 our wholly owned subsidiary, Xstream Brands,
entered into an Assignment of Trademark with The Maui Juice Company, Inc. for
the assignment of all of its rights and interests in the trademark "Maui Juice
Company", including all variations thereof such as any spelling, formatives,
phonetic variations and stylized designs of the same and all goodwill associated
therewith. Maui Juice Company's products contain interesting blends of unusual
natural ingredients such as noni, spirulina and aloe.  They also bring with them
a Hawaiian heritage which we believe is a valuable marketing asset for our
future business in the U.S. mainland with this brand.  As consideration we
agreed to pay The Maui Juice Company, Inc. $300,000 to be paid under the terms
of the assignment agreement.

       On March 16, 2004 our wholly owned subsidiary, Beverage Network of
Massachusetts, acquired substantially all of the assets and assumed certain
liabilities of Ayer Beverages, Inc. The general manager of Ayer Beverages has
signed a three year agreement with us to act as vice president of our New
England operations.  We believe that Ayer Beverages' business also provides us
with an important foothold in Massachusetts from which we have been able to open
a new warehouse and business in the Boston-metropolitan area.  Under the terms
of the purchase agreement, as consideration we issued 20,000 shares of our
common stock valued at $48,000 and $200,000 in cash.

       Effective July 1, 2004, we purchased the assets of Master Distributors,
Inc., d/b/a Atlantic Beverage Co., which included inventory, accounts
receivable, office furniture, the rights to the products marketed by Atlantic
Beverage and all rights to the operational business of Atlantic Beverage. The
Atlantic Beverage business services the Washington DC, Northern Virginia and
Baltimore, Maryland areas with a wide range of beverage products including
Welch's and Hanson's products, products which we also distribute in our New
England operations. Mr. Morris Stoddard, the former General Manager of Master
Beverages, Inc., has signed a five year contract with us to oversee the
management and growth of our Mid-Atlantic states' business and to act as an
Advisory Director to the our Board of Directors.

       As consideration for the purchase of the assets of Atlantic Beverage we
issued 96,154 shares of our common stock and $570,000 in cash which was
delivered at closing, with an additional $554,648 in cash due by September 9,
2004, together with a secured convertible promissory note for $2,000,000 payable
in 60 equal monthly payments and bearing 6% interest per annum and a separate
$250,000 payment to be made in 12 equal weekly installments pursuant to the
terms of the purchase agreement. The note is collateralized by the assets
acquired, subject to the first position interest of Laurus Master Fund, L.P. The
holder of the secured convertible promissory note may, at his option, elected to
receive shares of our common stock valued at $5.20 per share in lieu of cash
payments, with the minimum conversion amount being $25,000. As of March 15, 2005
we still owed Master Distributors, Inc. a portion of the cash payment which was
due on September 9, 2004, as well as certain amounts under the secured
convertible promissory note. In January 2005 Master Distributors, Inc. agreed to
defer those amounts, and Mr. Stoddard agreed to defer amounts due him under his
employment agreement, until April 14, 2005. As consideration for these
deferments, we issued or agreed to issue to Mr. Stoddard and his assigns an
aggregate of 390,000 shares of common stock valued at $660,000. September 2005
we received a notice form default from the principal shareholder of Master
Distributors, Inc. At December 31, 2005 the balance due the seller in this
transaction is $2,063,317.

COMPETITION

       We compete with a growing number of new age and traditional beverages
from the three global beverage companies and with brands owned by virtual brand
owners like Hansen's (makers of "Monster" Energy Drink).  Carbonated soft drinks
remains the largest single category. However, consumers are increasingly turning
away from carbonated beverages and focusing on New Age drinks. This category of
beverage includes single-serve fruit beverages, sports beverages such as

                                       10


<PAGE>
Gatorade and Power Aide, energy drinks such as Red Bull, bottled water, premium
soda, nutrient enhanced drinks, ready to drink coffees and teas, packaged
juices, smoothies, and vegetable/fruit blends. In its New Age Beverage Market
Overview, Beverage Marketing Corporation shows the New Age category consumption
increasing from 7.6 gallons per capita in 1994 to 19.6 gallons per capita in
2003. In its report on the carbonated soft drink market for the same period,
Beverage Marketing Corporation shows an increase from 49.9 gallons per capita in
1999 to 53.8 gallons per capita in 2003. Effectively, carbonated soft drinks
grew 7.8% over the period when compared to 157.9% growth for New Age beverages.
We face significant competition from other companies, especially from Red Bull,
the leader in the energy drink field.  Most of these companies are better
capitalized than us and can obtain financing on more favorable terms.

GOVERNMENTAL REGULATION

       The Food and Drug Administration ("FDA") issues rules and regulations for
the beverage industry including, but not limited to, the labeling and formulary
ingredients of beverage products.  We are also subject to various state and
local statutes and regulations applicable to the production, transportation,
sale, safety, advertising, and labeling.  Compliance with these provisions has
not had, and we do not expect such compliance to have, any material adverse
effect upon our capital expenditures, net income or competitive position.
Regulatory guidelines, however, are constantly changing and there can be no
assurance that either our product or our third party manufacturers will be able
to comply with ongoing government regulations.

INTELLECTUAL PROPERTY

       We rely on common law rights to our trademarks "Maui Juice Company" and
"Squeeze." The common law rights protect the use of these marks used to identify
our products.  Our earlier application for a trademark of the name "Yohimbe
Energy Drink" was cancelled.  It is possible that our competitors will adopt
product or service names similar to ours, thereby impeding our ability to build
brand identity and possibly leading to customer confusion.  Our inability to
protect our trade names will have a material adverse effect on our business,
results of operations and financial condition.  We also rely on trade secrets
and proprietary know how, and employ various methods, to protect our concepts.
However, such methods may not afford complete protection, and there can be no
assurance that others will not independently develop similar know how or obtain
access to our know how and concepts.  There can be no assurance that we will be
able to adequately protect our trade secrets. Third parties may assert
infringement claims against us or against third parties upon whom we rely and,
in the event of an unfavorable ruling on any claim, we may be unable to obtain a
license or similar agreement to use technology that we rely upon to conduct our
business.

EMPLOYEES

       We currently have approximately 45 employees.  None of our employees are
covered by a collective bargaining agreement nor are they represented by a labor
union. We consider our employee relations to be good.

RISK FACTORS

       Before you invest in our securities, you should be aware that there are
various risks.  You should consider carefully these risk factors, together with
all of the other information included in this annual report before you decide to
purchase our securities.  If any of the following risks and uncertainties
develop into actual events, our business, financial condition or results of
operations could be materially adversely affected and you could lose all of your
investment in our company.

                                       11

<PAGE>

WE WILL REQUIRE ADDITIONAL CAPITAL TO FUND OUR ONGOING OPERATIONS. IF WE ARE
UNABLE TO RAISE ADDITIONAL CAPITAL, THEN WE WILL NOT BE ABLE TO CONTINUE
OPERATIONS.

       While we have increased our sales from year to year, our revenue growth
has not been significant enough to generate sufficient gross profits to fund our
daily operations. While we believe in the viability of our strategy to improve
sales volume, we cannot accurately predict when or if our sales and gross
profits will increase to the level necessary to sustain our operations and we
will require additional capital to continue our acquisition strategy. Therefore,
we will need to raise additional capital to fully implement our business,
operating and development plans, sustain our ongoing operations and satisfy our
obligations. All of our assets serve as collateral under currently outstanding
obligations and we do not presently have any firm commitments for additional
sources of working capital. There are no assurances that we will be successful
in raising additional capital. If we are unable to obtain additional working
capital in the near future, our ability to continue as a going concern will be
in doubt and we may be required to curtail all or a portion of our operations.

WE HAVE A HISTORY OF LOSSES AND A SUBSTANTIAL ACCUMULATED DEFICIT, AND WE CANNOT
ASSURE YOU THAT WE WILL BE ABLE TO CONTINUE AS A GOING CONCERN. AS A RESULT, YOU
COULD LOSE YOUR ENTIRE INVESTMENT IN OUR COMPANY.

       For the fiscal years ended December 31, 2005 and 2004 we reported loss
from operations of $8,363,981 and $6,959,446, respectively, and our cash used in
operating activities was $2,929,367 and $3,534,338, respectively. At December
31, 2005 we had cash on hand of approximately $94,000 and a working capital
deficit of $15,353,740. While our sales for fiscal 2005 increased $1,642,613, or
approximately 19% from fiscal 2004, our operating expenses increased $1,404,535
in fiscal 2005 from fiscal 2004. Our revenue has not been sufficient to sustain
our operations and, accordingly, we are in default under a number of
obligations. The independent auditor's report for the fiscal year ended December
31, 2005 on our financial statements includes an explanatory paragraph to their
audit opinion stating that our net losses, accumulated deficit and working
capital deficit raise substantial doubt about our ability to continue as a going
concern. Our financial statements do not include any adjustments that might
result from the outcome of this uncertainty. As described above, we will need to
raise additional working capital in order to continue our operations and satisfy
our current and future obligations. If we are not successful in securing
additional working capital, we may be required to cease operations.

WE ARE SUBJECT TO A NUMBER OF PAST DUE OBLIGATIONS AND JUDGMENTS, AS WELL AS
UNPAID PAYROLL TAXES. OUR CONTINUING INABILITY TO SATISFY THESE OBLIGATIONS
COULD RESULT IN SIGNIFICANT ADDITIONAL DAMAGES AND LEGAL FEES AND MAY PREVENT US
FROM CONTINUING AS A GOING CONCERN.

       At December 31, 2005 our current liabilities totaled $16,809,008, which
includes certain non-cash expenses related to our financings or liabilities
which have been restructured subsequent to December 31, 2005. Included in the
current liabilities at December 31, 2005, however, is approximately $7,597,400
of liabilities which are past due at December 31, 2005 including amounts
representing litigation judgments against our company, approximately $344,000
due for payroll taxes and amounts related to notes we have issued for
acquisitions or financing transactions. We do not presently have sufficient
capital to satisfy these obligations, including obligations to the IRS for
payroll taxes we paid but which were not remitted by the payroll service
provider. We are continuing to pursue litigation against the payroll service
provider and its principals and are in negotiations with the I.R.S. regarding
the payment of these taxes. If we are unable to make satisfactory arrangements
with the I.R.S. related to these taxes, we could be subject to liens on our
assets as well as significant penalties. While the other portions of these
obligations are unsecured, other than a pledge of certain shares of our common
stock, we may be required to use working capital to litigate these matters which
will reduce the amount of capital we have available to fund our ongoing
operations.

OUR ASSETS SERVE AS COLLATERAL UNDER THREE OUTSTANDING SECURED  TERM NOTES.  IF
WE WERE TO DEFAULT ON OUR OBLIGATIONS UNDER THESE NOTES LAURUS MASTER FUND, L.P.
COULD FORECLOSE ON OUR ASSETS WHICH WOULD PREVENT US FROM CONDUCTING OUR
BUSINESS IN THE FUTURE AND WOULD CAUSE US TO CEASE OPERATIONS.

       In April 2006 we also entered into a financing agreement with Laurus
Master Fund, Ltd. pursuant to the terms of a secured convertible term note in
the principal amount of $2,000,000, and two, non convertible three year term
notes each in the principal amount of $4,000,000. The notes are collateralized
by a blanket security interest in our assets and a pledge of the stock of our
subsidiaries. While as a condition of the restructure of our obligations to
Laurus Master Fund, L.P. in April 2006 the existing past due obligations will
not constitute future events of default, if we should default under the
repayment provisions of the secured convertible term note, or otherwise permit
an event of default to occur under the note agreement, the note holder could
seek to foreclose on our primary assets in an effort to seek repayment under the
note. If the note holder was successful, we would be unable to conduct our
business as it is presently conducted and our ability to generate revenues and
fund our ongoing operations would be materially adversely affected

CERTAIN OF THE FINANCING TRANSACTIONS WE HAVE ENTERED INTO PROVIDE FOR THE
PAYMENT OF LIQUIDATED DAMAGES IF WE DO NOT REGISTER THE UNDERLYING SHARES OF
COMMON STOCK ON A TIMELY BASIS.

       At December 31, 2005 we have recorded liabilities in the amount of
$1,080,977 related to penalties for failure to timely register shares of our
common stock which are underlying various financing transactions we entered into
in fiscal 2004 and fiscal 2005. These liquidated damages will continue to accrue
until such time as we satisfy the registration obligation. We do not currently
have a registration statement pending covering any of these securities and we
are unable to predict at this time when, or if, we will satisfy these
registration obligations. As a result, we are unable estimate the amount of
additional liquidation damages for which we will be obligated, which such amount
may be significant.

WE MAY RECEIVE NO ECONOMIC BENEFIT FROM THE SWAP TRANSACTION WITH COGENT CAPITAL
CORP. AND THE INSTITUTIONAL INVESTORS WHICH INCREASED OUR ISSUED AND OUTSTANDING
COMMON STOCK BY APPROXIMATELY 75%.

       Under the terms of the swap transaction we entered into in June 2005
which is described later in this prospectus under "Management's Discussion and
Analysis or Results of Operations - Recent Financing Transactions," we issued
19,736,848 shares of our common stock in exchange for $15 million of U.S.
government bonds which represented a 20% discount to the fair market value of
our common stock at the time we issued the shares. These share represent
approximately 75% of our presently issued and outstanding common stock. The
bonds and a portion of the shares were placed in escrow pending the satisfaction
of certain conditions. While we did not receive any immediate economic benefit
from the transaction, the amount of funds we may ultimately receive from this
swap transaction is, unknown and it is possible that we will not receive any
proceeds from these bonds. In addition, there is no provision for the return of
any of the shares of our common stock we issued at the time of the transaction
if we do not receive the $15 million represented by the face amount of the bonds
or reacquire the shares through exercise of an option. Finally, while the bonds
remain in escrow we are required to pay interest on the $15,000,000 which
adversely affects our cash flow.

CERTAIN OF OUR OUTSTANDING SECURITIES ARE CONSIDERED DERIVATE LIABLITLIES. WE
HAVE RECOGNIZED NON-CASH INCOME AND LOSSES IN FISCAL 2005 AND FISCAL 2004 WHICH
HAVE HAD A MATERIAL EFFECT ON OUR FINANCIAL STATEMENTS.

       The terms of various financings we have entered into in fiscal 2004 and
2005 contains terms which are considered embedded conversion features pursuant
to EITF Issue No. 00-19. Additionally, because there is no explicit number of
shares that are to be delivered under the terms of certain of these financings,
at December 31, 2005 we were unable to assert that we had sufficient authorized
and unissued shares to settle such features. Accordingly, all of our previously
issued and outstanding instruments, such as warrants and options issued to
non-employees pursuant to rendered services as well as those issued in the
future, would be classified as liabilities, effective with the granting of the
subsequent financing conversion reset feature. As described in Note 18 to the
financial statements for the years ended December 31, 2005 and 2004 which are
included elsewhere in this annual report, the application of EITF Issue No.
00-19 on our financial statements for fiscal 2005 resulted in other income to us
of $14,160,487, while it resulted in other expense of $4,260,337 for fiscal
2004. While these income and expense items are non-cash transactions, in each of
the years the application of the accounting standard had a significant impact on
our net loss for the period through a reduction in our net loss of $14,160,487
for fiscal 2005 and an increase in our net loss of $4,260,337 for fiscal 2004.
In addition, at December 31, 2005 our balance sheet reflects a current liability
of $5,615,541 related to the derivate liability. This derivate liability has
materially adversely impacted our working capital. While we cannot predict the
impact of this accounting standard on our financial statement in future periods
as the income/expense calculation is based upon a current market value of our
common stock, it is likely that it will have similar impacts on our financial
statement in future periods.

                                       12


<PAGE>

OUR MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR ACQUISITIONS AND TO
MANAGE OUR GROWTH AND WE MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS
OF THESE ACQUISITIONS.

       Our business strategy includes growth through acquisition and internal
development.  We are subject to various risks associated with our growth
strategy, including the risk that we will be unable to identify and recruit
suitable acquisition candidates in the future or to integrate and manage the
acquired companies.

       Since our acquisition of Total Beverage Network, between April 2003 and
July 2004 we have acquired four additional beverage distribution companies
together with a natural juice company and certain intellectual property rights
related to other new age beverages. Acquired companies' histories, geographical
locations, business models and business cultures can be different from ours in
many respects. Our directors and senior management face a significant challenge
in their efforts to integrate our businesses and the business of the acquired
companies or assets, and to effectively manage our continued growth. There can
be no assurance that our efforts to integrate the operations of any acquired
assets or companies acquired in the future will be successful, that we can
manage our growth or that the anticipated benefits of these proposed
acquisitions will be fully realized. The dedication of management resources to
these efforts may detract attention from our day-to-day business. There can be
no assurance that there will not be substantial costs associated with these
activities or of the success of our integration efforts, either of which could
have a material adverse effect on our operating results.

A MAJORITY OF OUR REVENUES ARE DERIVED FROM DISTRIBUTION OF THIRD PARTY BRANDS.
WE ARE DEPENDENT ON DISTRIBUTION AGREEMENT WITH THESE MANUFACTURERS, THE
MAJORITY OF WHICH ARE SHORT-TERM.  IF WE SHOULD LOSE THE ABILITY TO DISTRIBUTE
THESE THIRD-PARTY BRANDS OUR FUTURE REVENUES WILL BE ADVERSELY AFFECTED.

       We are a party to distribution agreements with approximately 20 third
party beverage manufacturers, including brands such as Spa Mineral Water
imported from Belgium, Welch's juices, Glacier Lake water, Hansen's Natural
beverages and Fiji Mineral water among others.  Because approximately 96% of our
revenues are derived from distribution of third party brands, our business
depends heavily on distribution of brands which are manufactured by these third
parties. In most instances, our right to distribute these products are subject
to the terms of distribution agreements, although in one instance we are not a
party to a written agreement but distribute the products based upon an oral
agreement.  As described elsewhere in this annual report under "Our Business -
Our proprietary products and distribution activities", this oral agreement can
be terminated at any time without notice to us.  Revenues from distribution of
third party brands under this oral agreement represented approximately 3.0% of
our total revenues for the year ended December 31, 2005.  The terms of the
written agreements vary, but generally provide that they are either exclusive as
long as we meet certain minimum order requirements or are non-exclusive.
Historically we have met the various minimum order requirements and anticipate
that we will continue to meet these terms in the future.  The terms of these
written agreements are generally one year, with renewal options. Because of the
significant nature of the revenues from distribution of third party brands to
our results of operations, the termination of any of these distribution
agreements could have a material adverse effect on our business operations and
prospects.

THERE ARE NO ASSURANCES WE WILL EVER BE SUCCESSFUL IN ESTABLISHING A MARKET FOR
OUR PROPRIETARY BRANDS.  THE LACK OF ANY SIGNIFICANT MARKET IN FUTURE PERIODS
WILL ADVERSELY EFFECT OUR ABILITY TO INCREASE OUR REVENUES AND OUR MARGINS.

       A key element to our business model is the expansion of the distribution
of our propriety brands which presently account for approximately 5% of our
revenues for the year ended

                                       13


<PAGE>
December 31, 2005.  Our margins are greater on the sales of our propriety
products than margins from the sales of third party brands.  We face significant
competition from other new age beverage companies, the majority of which have
greater brand recognition, a longer operating history and greater financial
resources than we do.  We cannot assure you that we will ever be successful in
developing a meaningful market for our propriety brands.  Our inability to
create demand in the marketplace for our propriety products will prevent us, in
future periods, from both increasing our revenues from sales attributable to
those propriety products as well as increasing our margins on our sales.

WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.

       Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The Nasdaq Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges and Nasdaq are
those that address board of directors' independence, audit committee oversight,
and the adoption of a code of ethics. While our board of directors has adopted a
Code of Ethics and Business Conduct, we have not yet adopted any of these
corporate governance measures and, since our securities are not yet listed on a
national securities exchange or Nasdaq, we are not required to do so. It is
possible that if we were to adopt some or all of these corporate governance
measures, shareholders would benefit from somewhat greater assurances that
internal corporate decisions were being made by disinterested directors and that
policies had been implemented to define responsible conduct. For example, in the
absence of audit, nominating and compensation committees comprised of at least a
majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided.  Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.

THE CONVERSION OF THE SECURED CONVERTIBLE TERM NOTE, EXERCISE OF WARRANTS AND
THE CONVERSION OF SHARES OF OUR SERIES A AND SERIES B CONVERTIBLE PREFERRED
STOCK WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS.

       At March 31, 2006 we had:

       *      35,802,211 shares of common stock issued and outstanding,

                                       14


<PAGE>

       *      warrants to purchase a total of 9,957,548 shares of our common
              stock with exercise prices ranging from $1.50 to $10.00 per share,

       *      200,000 shares of Series A Cumulative Convertible Voting Preferred
              Stock issued and outstanding which is convertible into 200,000
              shares of our common stock,

       *      49.33 shares of our Series B Convertible Preferred Stock issued
              and outstanding which is presently convertible into 3,245,395
              shares of our common stock, based upon a conversion price equal to
              the liquidation preference ($50,000 per share) divided by the
              conversion price of $0.76 per share, and

       *      4,444,444 shares of our common stock issuable upon the conversion
              of the outstanding principal balance due on a secured convertible
              term note in the principal amount of $2,000,000 which was issued
              to Laurus Master Fund, Ltd. in April 2006 based upon a conversion
              price of $0.45 share.

       Both the conversion prices of the Series B Convertible Preferred Stock
and the secured convertible term note as well as the common stock purchase
warrants to purchase an aggregate of 2,160,000 shares of our common stock issued
or sold in connection with those transactions are all subject to adjustment in
the event of stock splits and combinations, dividends or distributions,
reclassifications or reorganizations, or in the event we issue or sell any
additional shares of common stock or other securities which are convertible into
common stock or common stock equivalents at a price less than the then current
conversion price.  In addition, remaining common stock purchase warrants
currently outstanding to purchase an aggregate of 1,064,625 shares of our common
stock are also subject to adjustment in the event of stock splits and
combinations, dividends or distributions, reclassifications or reorganizations.
As a result, the number of shares of our common stock into which the Series B
Convertible Preferred Stock, the secured convertible term note, or the
outstanding warrants are convertible may substantially increase based upon
future events.  We cannot predict with any certainty at this time, however, if
any of these anti-dilution provisions will ever apply in the future to any of
these securities and therefore we are unable to estimate the ultimate number of
shares of our common stock which may be issuable upon the conversion of either
the Series B Convertible Preferred Stock or the secured convertible term note or
the warrants.

       The conversion of the secured convertible term note or the Series A or
Series B Convertible Preferred Stock and the exercise of outstanding warrants
may materially adversely affect the market price of our common stock and will
have a dilutive effect on our existing stockholders.

PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A
TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.

       Provisions of our articles of incorporation and bylaws may be deemed to
have anti-takeover effects, which include when and by whom special meetings of
our stockholders may be called, and may delay, defer or prevent a takeover
attempt.  In addition, certain provisions of the Nevada Revised Statutes also
may be deemed to have certain anti-takeover effects which include that control
of shares acquired in excess of certain specified thresholds will not possess
any voting rights unless these voting rights are approved by a majority of a
corporation's disinterested stockholders.

       In addition, our articles of incorporation authorize the issuance of up
to 10,000,000 shares of preferred stock with such rights and preferences as may
be determined from time to time by our board of directors, of which 200,000
shares of Series A Cumulative Convertible Voting Preferred Stock and 49.33
shares of Series B Convertible Preferred Stock are issued and outstanding as of

                                       15


<PAGE>
March 31, 2006.  Our board of directors may, without stockholder approval, issue
preferred stock with dividends, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
our common stock.

OUR COMMON STOCK IS CURRENTLY QUOTED ON THE OTCBB, BUT TRADING IN OUR STOCK IS
LIMITED.  BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS
QUOTED ON THE OTC BULLETIN BOARD, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH
CAN ADVERSELY EFFECT ITS LIQUIDITY.

       The market for our common stock is extremely limited and there are no
assurances an active market for our common stock will ever develop.
Accordingly, purchasers of our common stock cannot be assured any liquidity in
their investment.  In addition, the trading price of our common stock is
currently below $5.00 per share and we do not anticipate that it will be above
$5.00 per share in the foreseeable future.  Because the trading price of our
common stock is less than $5.00 per share, our common stock is considered a
"penny stock," and trading in our common stock is subject to the requirements of
Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule,
broker/dealers who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements. SEC regulations also require additional disclosure in
connection with any trades involving a "penny stock," including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and its associated risks. These requirements severely limit
the liquidity of our securities in the secondary market because few broker or
dealers are likely to undertake these compliance activities.

ITEM 2.      DESCRIPTION OF PROPERTY

       We lease approximately square feet of office space in Fort Lauderdale,
Florida, which also serves as our principal executive offices, under a sub-lease
expiring on December 31, 2006.  The lease provides for monthly rental payments
of approximately $1,250, together with a pro-rata share of common area expenses.


                                       16


<PAGE>
       Until October of 2005 Beverage Network of Connecticut leased
approximately 13,600 square feet in Bristol, Connecticut under a lease expiring
in October 2008.  We paid $5,108.25 per month for the leased space. The space
was primarily dedicated to a warehouse area, but included space for
administrative and operational offices. Beverage Network of Connecticut does not
currently have an office or warehouse

       Beverage Network of Massachusetts leased approximately 4,300 square feet
in Ayer, Massachusetts under a lease expiring in June 2004 with an annual
renewal option.   We pay $1,425 per month for the leased space. The space is
primarily dedicated to a warehouse area, but includes space for a small
operational office.

       Beverage Network of Hawaii rents approximately 2,750 square feet in
Wailuku, Hawaii under a lease expiring in May 2008 at a monthly rental of
$3,490.  The primary use of this space is for our Hawaiian manufacturing and
warehousing operations.

       Master Distributors, Inc. rents approximately 70,000 square feet of
commercial office and warehouse space under a lease expiring in March 2008.  We
pay an aggregate of approximately $288,640 annually, which amount escalates to
approximately $297,300 annually beginning in April 2005.  We sub-lease a portion
of this space to four unaffiliated companies who pay in the aggregate
approximately $155,400 annually in rent.

       All of the foregoing facilities are in good condition and with the
exception of XStream Beverage Network, Inc. are adequate for currently
anticipated needs. We anticipate moving the administrative offices of XStream
Beverage Network to a more appropriate facility later in 2006. We believe that
in the event that the leases with respect to any of the aforementioned
facilities should not be renewed, alternative space will be available at
comparable rates.

ITEM 3.      LEGAL PROCEEDINGS

       Our subsidiary, Beverage Network of Massachusetts, Inc. was named as a
party in a legal proceeding filed by Kraft Foods, Inc. in the Superior Court of
the County of Middlesex, Commonwealth of Massachusetts with respect to Civil
Docket Number MICV2005-02503. For financial reasons we were unable to contest
the plaintiff's claims and on August 26, 2005 a default order was entered in
favor of Kraft Foods, Inc. against Beverage Network of Massachusetts, Inc. On
October 4, 2005 Beverage Network of Massachusetts, Inc. was served with an
execution order in the amount of $91,902.44, which includes costs. We have
agreed the terms of a payment plan with the plaintiffs attorney. Whereby we have
agreed to remit monthly payments of $14,172 until the entire balance is paid.
The balance due as of April 1, 2006 was $58,559.

       Under the terms of the Secured Convertible Term Note issued by us to
Laurus Master Fund, L.P. in May 2004, this judgment constituted an event of
default. As security for this note we had granted a security interest to Laurus
Master Fund, Ltd. in all of our assets, the obligations under the secured
convertible term note have been guaranteed by our subsidiaries, and we have
pledged the stock of all of our current and any future subsidiaries acquired by
us during the term of the secured convertible term note. At December 31, 2005,
the outstanding principal balance due under this Secured Convertible Term Note
was $2,771,355. As a result of this default, Laurus Master Fund, Ltd. was
entitled to immediately accelerate the due date of the note, and we would have
owed Laurus Master Fund, Ltd. 125% of the outstanding principal amount of the
note plus accrued and unpaid interest and fees which, as of October 27, 2005,
would total $3,694,275. Demand was not made by Laurus Master Fund, Ltd. and we
have subsequently redeemed the note with part of the proceeds of a new non
convertible term note sold to Laurus Master Fund Ltd. The event of default under
the Secured Convertible Term Note has triggered an event of default under
unsecured promissory notes in the aggregate principal amount of $3,019,500 which
we issued to an aggregate of 39 purchasers in a private placement of our
securities between June and December, 2005. At the option of the holders of
greater than 50% of the face amount of these outstanding notes, the notes will
become immediately due and payable. We advised these note

                                       17


<PAGE>
holders in writing of the occurrence of the event of default.  We do not know at
this time what action, if any, the note holders may take.

       On September 12, 2005 we received a notice of default under the terms of
two secured promissory notes issued by us to investors in the aggregate
principal amount of $300,000. These notes were due and payable by us on
September 1, 2005. As collateral for these notes we pledged 100,000 shares of
our common stock and Theodore Farnsworth, our CEO, pledged 100,000 shares of our
common stock owned by him. The note holders are demanding payment of
$328,813.50. As we have been unable to pay these amounts, the note holders are
entitled to foreclose on the collateral at any time. On March 16, 2006, we
reached agreement with the two note holders whereby we would redeem the notes
and make all payments due to the note holders thereto, on or before March 31,
2006 in exchange for which agreement, we granted each note holder 750,000 shares
of our common stock. We also issued in escrow, 500,000 shares of our common
stock to each note holder which would be subject to release from escrow on March
31, 2006 should the notes not be redeemed by that date. We failed to redeem the
notes and consequently, the shares in escrow have been released by the escrow
agent to the note holders. No further agreement has been discussed or reached
with these two note holders. The default under these notes created another event
of default under the Secured Convertible Term Note due Laurus Master Fund, Ltd.
as well as under the unsecured promissory notes in the principal amount of
$3,019,500.

       On September 29, 2005 we received a notice of default from Morris Stodard
and Master Distributors, Inc. under the terms of an unsecured promissory note
issued in connection with our purchase of Master Distributors, Inc. as well as
under an employment agreement with Mr. Stodard. The note holder is demanding
payment of $517,735 which he asserts is the amount of outstanding principal and
interest due under the note, as well as amounts due under the employment
agreement. We continue to make payments to Mr. Stodard and Master Distributors
based on the balances that were reflected at the time of the Master Distributors
acquisition. The balance of payments due to Mr. Stodard and Master Distributors
was $132,631 as of April 15, 2006. The default under this note has created
another event of default under the Secured Convertible Term Note due Laurus
Master Fund, Ltd. as well as under the unsecured promissory notes in the
principal amount of $3,019,500.

       In October 2005, American Beverages Inc filed a demand against beverage
Network of Connecticut and Beverage Network of Massachusetts in the amount of
$69,452. We have reached agreement on a settlement plan with their attorneys.

       In October 2005, Good-o Beverages was awarded a judgment on the amount of
$28,500 against beverage Network of Connecticut for product ordered by us in
fiscal 2004. We have made regular payments in settlement of this amount and
there is a balance of $9,900 as of March 31 2006.

       On November 16, 2005 Beverage Network of Connecticut  received a demand
letter from the attorneys representing Food Collage, Inc for payment of
$17,067.86 for product ordered by us in 2004 but not paid for. We are working
with the plaintiff to settle the account.

       On December 5, 2005 Hobarama ,Inc. obtained a judgment in the amount of
$16,740 against Beverage Network of Connecticut. We have reached agreement on a
settlement plan with their attorneys.

       On January 15, 2006 Export Development Canada obtained a judgment against
Total Beverage Network, Inc in the amount of $22,357 for products that we
ordered in 2004 but did not pay in full. We have not yet reached an agreement
with the plaintiff.

       On January 25, 2006, we received a Civil Action Summons from the attorney
for the Maui Juice Company and Lawrence Lassek for breach of contract, for our
failure to pay certain installment payments under the terms of the Purchase and
Sale Agreement with Maui Juice Company in the amount of $30,000. We are working
with the plaintiffs to make the account current.

       In February, 2006 we received a demand letter from Ayer Beverage, Inc. in
the amount of $72,934 for payments due under the Purchase and Sale Agreement
between Ayer Beverage and Beverage Network of Massachusetts. Under the same
agreement, we are also required to make payments under obligations that we
assumed for $7, 889 plus costs and interest to Citizen's Bank and $30,000 to Mr.
Tom MacIntire. We have reached agreement with Mr. Lehan and Ayer Beverages to
pay the obligations to Mr. MacIntire and Citizen's Bank in full and pay Ayer
Beverage $36,467 followed by three monthly payments thereafter of $9,467

       In February 2006, Total Beverage Network received a demand from Le
Natures, Inc in the amount of $17,057 for product that was ordered in 2004 but
not paid in full. We are working with their attorney to reach a settlement
agreement.

                                       18


<PAGE>

       On June 23, 2005 Hansen Beverage Company, one of the third party brand
beverage suppliers to our subsidiary Beverage Network of Maryland, Inc., gave us
written notice of its intention not to renew the distribution agreement between
Hansen and Beverage Network of Maryland for the Monster brand of energy drinks.
As settlement, on September 15, 2005 Hansen agreed to pay Beverage Network of
Maryland approximately $113,211 and awarded Beverage Network of Maryland with a
distribution license agreement for the following products, all under the Hansen
trademark:
                       *  Hansen Energy, Original Formula
                       *  Energy Pro
                       *  Energy Water
                       *  Signature Sodas
                       *  Gold Standard Teas
                       *  Hansen Smoothies

       The license agreement has an initial term ending on December 31, 2005 and
renews automatically for further renewal periods of one calendar year unless
Beverage Network of Maryland is in breach of certain specified defaults that are
normal in such agreements.  Hansen offset certain receivables from Beverage
Network of Maryland against the settlement amount which result in a net payment
to Beverage Network of Maryland from Hansen of approximately $36,000.

       In March of 2004, we contracted with Florida Employer Solutions Inc. to
handle our company's payroll, payroll added costs and certain other employee
benefits such as health insurance. The collection and payment of payroll taxes
was an integral part of this service. In June 2005, we were informed by the
Internal Revenue Service that we were in default of certain payroll tax related
payments, which monies had been paid by us to Florida Employer Solutions for tax
payment purposes. Florida Employer Solutions has admitted to us and to the IRS
that they had not made the mandatory payments when due and have agreed to repay
all monies owed to the IRS in this regard. We believe that the total amount due
to the IRS is approximately $250,000, which includes unpaid taxes as well as
interest and penalties. The IRS have agreed to waive penalties upon reveiving
the principal balance due. In September 2005 we filed a complaint in the 17th
Judicial Circuit in and for Broward County, Florida against Florida Employer
Solutions, Inc. and Luis Ferrer and Maria G. Legarda, officers of Florida
Employer Solutions. Our complaint alleges breach of contract, fraud, conversion,
violation of the Florida Unfair and Deceptive Trade Practices Act and unjust
enrichment and seeks judgment against Florida Employer solutions for all damages
interests and costs.

       We have been advised by our attorneys handling this matter that Florida
Employer Solutions Inc. is organizing a settlement payment. In the event that we
receive such settlement payment, it will be applied the tax portion of the
liability due the IRS.  We have been further advised by our attorney handling
this matter that given the circumstances surrounding the non-payment of the
taxes that the IRS may waive the penalties but require that the interest due be
paid. We are vigorously pursuing settlement in full from  Florida Employer
Solutions Inc. and its directors at which time the tax lien filed against us by
the IRS will be vacated.

       Our subsidiary, Beverage Network of Massachusetts, Inc. was named as a
party in a legal proceeding filed by Fuze Beverage, LLC in the Superior Court
for the County of Middlesex, Commonwealth of Massachusetts with respect to Civil
Docket Number MICV2005-01392.  For financial reasons we were unable to contest
the plaintiff's claims and on May 27, 2005 a default order was entered in favor
of Fuze Beverage, LLC against Beverage Network of Massachusetts, Inc. The court
has entered a judgment against us in the amount of $36,873.33.

                                       19


<PAGE>
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None.


                                    PART II
`

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

       Our common stock is quoted on the OTCBB under the symbol XSBV. The
reported high and low sales prices for the common stock as reported on the OTCBB
are shown below for the periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions. All information contained in the following table gives
proforma effect to the 1:20 reverse stock split of our common stock effective
July 19, 2004.

                                                 High         Low
                                                 ----         ---
Fiscal 2003

First quarter ended March 31, 2003            $  53.00     $  22.40
Second quarter ended June 30, 2003            $  31.00     $  20.80
Third quarter ended September 30, 2003        $  24.00     $  10.40
Fourth quarter ended December 31, 2003        $  10.40     $   3.40

Fiscal 2004

First quarter ended March 31, 2004            $  10.60     $   4.00
Second quarter ended June 30, 2004            $   7.80     $   4.00
Third quarter ended September 30, 2004        $   4.60     $   1.80
Fourth quarter ended December 31, 2004        $   2.50     $   1.32

Fiscal 2005

First quarter ended March 31, 2005            $   1.85     $   0.93
Second quarter ended June 30, 2005            $   1.70     $   0.81
Third quarter ended September 30, 2005        $   1.30     $   0.45
Fourth quarter ended December 31, 2005        $   0.85     $   0.18

       On April 12, 2006 the last  sale price of our common stock as reported on
the OTCBB was $0.35  As of March 31,  2006  there  were approximately 621 record
owners of our common stock.

DIVIDEND POLICY

       We have never declared or paid any cash dividends on our common stock.
We currently expect to retain future earnings, if any, to finance the growth and
development of our business.

RECENT SALES OF UNREGISTERED SECURITIES

       The Company executed a twelve month consulting agreement for advisory
services, commencing November 11, 2005, in consideration of 200,000 shares of
common stock. The shares were valued at $0.40; the closing price on the date of
grant. The Company recognized consulting expense of $10,959 with a remaining
deferred component of $69,041 as of December 31, 2005. The recipient was an
accredited investor. The securities were issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on the exemption
provided by Section 4(2) of that act.

                                       20


<PAGE>

       The Company executed a second consulting agreement for advisory services
in consideration of 75,000 shares of common stock valued at $0.22; the closing
price of the stock on the grant date. The agreement may be terminated at any
time when notice is received by either party. The Company recognized and expense
of $16,500 for twelve months ending December 31, 2005. The recipient was an
accredited investor. The securities were issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on the exemption
provided by Section 4(2) of that act.

       The Company executed a third consulting agreement for advisory services
for a term of twelve months, commencing November 30, 2005. In consideration for
services, the consultant received 300,000 shares of common stock valued at $.22;
the closing price on the grant date. For the period ending December 31, 2005,
the Company recognized and expense of $5,605 with a remaining deferred component
of $60,395. The recipient was an accredited investor. The securities were issued
in a transaction exempt from registration under the Securities Act of 1933 in
reliance on the exemption provided by Section 4(2) of that act.

       The Company issued 100,000 shares of common stock pursuant to the terms
of an employee termination agreement. The shares were valued at $0.51; the
closing price of the stock on the grant date. The Company recognized
compensation expense of $51,000 for the twelve months Ending December 31, 2005.
The recipient was an non-accredited investor. The securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on the exemption provided by Section 4(2) of that act.

       On December 23, 2005, the Company executed a 60 day promissory note,
resulting in gross proceeds of $100,000. Attached to the note was a provision
for the Company to issue 50,000 shares of common stock to the holder. The shares
were valued at $0.44; the closing price on the date of grant. The Company
recognized an expense of $2,627 with a remaining deferred component of $19,373
to be amortized though February 23, 2006. The recipient was an accredited
investor. The securities were issued in a transaction exempt from registration
under the Securities Act of 1933 in reliance on the exemption provided by
Section 4(2) of that act.

       Pursuant to the terms of the December 23, 2005 promissory note the
Company was to issue, in it's own name, 250,000 shares of common stock as a
pledge for collateral on the $100,000 note. The shares were valued at par value
as they are considered issued but not outstanding as of December 31, 2005.

       On December 15, 2005, the Company executed a six month consulting
agreement for advisory services in consideration of 100,000 shares of common
stock, valued at $0.51. The Company recognized and expense of $4,484 with a
remaining deferred balance of $46,516 at December 31, 2005. The recipient was an
accredited investor. The securities were issued in a transaction exempt from
registration under the Securities Act of 1933 in reliance on the exemption
provided by Section 4(2) of that act.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

       We do not have any equity compensation plans.

                                       21


<PAGE>
ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

       The following discussion should be read together with the information
contained in the Consolidated Financial Statements and related Notes included in
the annual report.

OVERVIEW

       We develop, market, sell and distribute new age beverage category natural
sodas, fruit juices and energy drinks. We are also a wholesale distributor of
third party new age beverages, energy drinks, juices and non-carbonated sodas,
specialty and nutritional drinks, vitamin waters and non-alcoholic beer.  New
Age or alternative beverages are distinguishable from mainstream carbonated soft
drinks in that they tend to have less carbonation and are made from natural
ingredients. As a general rule, three criteria have been established for such a
classification, including relatively new introduction to the market-place, a
perception by consumers that  consumption is healthful when compared to
mainstream carbonated soft drinks and the use of natural ingredients and flavors
in the products. This beneficial perception by consumers allows the soft drink
industry to charge higher prices than those commanded by regular carbonated soft
drinks. For this reason, new age beverages are sometime referred to as value
added beverages.

       Our goal is to become a leading brand owner and distributor of beverage
products through multiple distribution channels. We believe that our acquisition
strategy is key to our ability to grow our company. Since our acquisition of
Total Beverage Network in April 2003 through December 31, 2004, we have acquired
additional beverage distribution companies together with a natural juice company
and certain intellectual property rights related to other new age beverage
names. The acquisitions included:

       *      April 2003 - Total Beverage Network.
       *      April 2003 - Universal Florida Beverage Distributors
       *      May 2003 - Finish-Line Distributors
       *      January 2004 - SQUEEZE trademark
       *      March 2004 - Pacific Rim Natural Juice Company
       *      March 2004 - Maui Juice Company trademark
       *      March 2004 - Ayer Beverages
       *      July 2004 - Master Distributors

       Our business strategy includes the acquisitions of additional
distribution companies and proprietary value-added brands currently engaged in
various aspects of the new age beverage industry. Our success is dependent on
our ability to make these additional acquisitions and then to effectively
integrate their operations into our company.

       The formation of Coca Cola Enterprises and then The Pepsi Bottling Group
began the  demise of the independent beverage distributors, whose fate was
sealed when Cadbury  Schweppes began buying up strong brands such as Snapple, Dr
Pepper, Seven Up and Mistic and running them through a few strong regional
distribution companies, such as S.E. Atlantic in the southeast U.S. The former
strong independents have consolidated and acquired many smaller competitors.
Most of the surviving small distributors are under- resourced, entrepreneurial
operations with weak core brand business and inadequate infrastructures.

       It is within this group of companies, distributors with solid management
but without the means to grow, that we have identified potential acquisition
targets. Our business objective is to market a full range of proprietary new age
brands. To achieve this goal, we are acquiring and developing brands and
products that we believe are appropriate and desirable for target consumers, as
well as acquiring a network of beverage distribution companies. Our strategy is
to complete our network of small to medium sized beverage distributors in major
markets throughout

                                       22


<PAGE>
the United States. We believe that we will generate stronger than industry
average margins by selling value-added proprietary brands and third party value-
added brands that are dependent upon our multi-market distribution network. We
also believe that the acquisition of beverage distribution companies will give
us access to our target customers as well as enabling us to earn revenues by
distributing a portfolio of third party brands.

       When used in this annual report, "fiscal 2005" means the fiscal year
ended December 31, 2005 and "fiscal 2004" means the fiscal year ended December
31, 2004.

RESULTS OF OPERATIONS

       Our sales for fiscal 2005 increased $1,642,613 to,$10,226,235 or
approximately 19% over fiscal 2004 sales of $8,583,622.The increase in sales is
attributable to the implementation of our acquisition strategy which we believe
is the key driver to grow our company. Our sales for fiscal 2005 include
revenues attributable to Ayer Beverages, which we acquired in March 2004, and
Master Distributors, which we acquired in July 2004 for the entire fiscal year
2005, compared to sales attributable to Ayer Beverages operations for only three
months in fiscal 2004 and six months of sales reported for Master Distributors
during fiscal 2004 as a result of the timing of the acquisitions. Sales
attributable to Master Distributors in fiscal 2005 were $9,387,275. If we adjust
our sales for fiscal year 2005 to exclude sales from Master Distributors, our
sales declined approximately $3,460,462 in Fiscal 2005 as compared to fiscal
year 2004. This decrease in sales is attributable to our lack of working capital
during fiscal 2005 which prohibited us from maintaining an adequate inventory of
third party brands for distribution and resulted in decreased sales in our New
England locations. During fiscal year 2005, distribution of third party brands
represented approximately 95% of our sales and sales of our proprietary products
represented approximately 5% of our sales. If we are able to continue to
implement our acquisition strategy with additional acquisitions during the
balance of fiscal 2006, of which there are no assurances, our sales would
increase as a result of sales attributable to the acquired companies.

       The cost of goods sold as a percentage of sales during fiscal year 2005
was approximately 83% as compared to approximately 83% for fiscal year 2004. We
anticipate that our cost of goods sold and related gross profit margins will
remain relatively constant until such time, if ever, as we are successful in
increasing sales of our proprietary products which will carry higher gross
profit margins. We require additional working capital which is presently not
available to fund product marketing of our proprietary brands in order to build
brand recognition and increase our sales of these products.

       We reported total operating expenses of $8,363,981 for the fiscal year
2005 as compared to total operating expenses of $6,959,446 for fiscal year 2004,
an increase of $1,404,535 or approximately 20%. The increase primarily includes:

       *      a decrease of $200,884 or approximately 18%, in marketing and
              selling expense. For the calendar year ending December 31,2005,
              Beverage Network of Maryland, Inc., reported marketing and selling
              expenses of $506,449, or approximately 57%, of our total marketing

                                       23


<PAGE>
              and selling expenses. These expenses include promotional spending
              at point of sale along with salaries and commissions of sales
              personnel. Included in the consolidated expenses of $895,783, is a
              one-time charge of approximately $183,000 for brand development
              related to our Chinese Rocket Fuel and shelf-stable Maui Juice
              Products. We anticipate that our marketing expenses will continue
              to increase for the following year, subject to our ability to make
              future acquisitions, and generate working capital. We will also
              continue to implement our strategy of developing and growing
              corporate owned brands.

       *      a decrease of $57,586, or approximately 13%, in professional fees.
              This item represents both accounting and legal fees. The major
              component of this decrease is due to a reduction of audit fees as
              the Company had no acquisitions during 2005. We project that
              professional fees will remain at such levels for the remainder of
              2006 unless the Company completes acquisitions which will, in
              turn, incur additional audit fees.

       *      an increase of $2,517,945, or approximately 195%, in consulting
              expenses. Consulting expense includes charges of cash and cashless
              fees, paid to financial advisory and public relations firms as set
              forth in the terms of each contract, in the form of cash,
              restricted shares and/or common stock warrants. Included is
              $1,631,167, or approximately 65% of the total increase that is
              attributable to amortization of deferred consulting expenses from
              stocks and warrants. We anticipate that consulting fees will
              remain relatively constant for the calendar year 2006.

       *      a decrease of $2,384,071 or approximately 55%, in compensation
              expense from calendar year 2005 to 2004. Compensation expense
              includes cash and stock compensation issued to certain employees
              and to the board of directors. The decrease reflects $1,740,663 of
              non-cash compensation paid; $1,350,000 of which was attributable
              to the one time issuance of 500,000 shares of our common stock to
              the executive officers in February 2004. The 500,000 shares of our
              common stock were issued as bonuses to the executives of the
              Company. We do not currently anticipate similar non-cash expenses
              in the balance of fiscal 2006. We also made compensation payments
              in fiscal 2005 to the former owners of our Connecticut and
              Maryland operations pursuant to agreements executed during the
              acquisitions of those businesses that totaled $150,000. The
              balance of the decrease of approximately $213,000 is primarily
              attributable to our lack of working capital during fiscal 2005
              which has caused us to reduce the number of employees with a
              corresponding decrease in salaries. We anticipate that the cash
              component of our compensation expense will remain relatively
              constant during calendar year 2006, subject to increases as we
              acquire additional companies.

       *      an increase of $64,292, or approximately 25%, in rent expense
              which is primarily attributable to the company's subsidiary;
              Beverage Network of Maryland, Inc. Their respective portion of the
              increase, $45,372, represents a twelve-month period of facility
              lease payments versus the six-month, (July 01, - December 31,
              2004) rent expenses reported in fiscal year 2004 due to the timing
              of the acquisition. We anticipate that rent expense will increase
              during the balance of fiscal year 2006 should we make further
              acquisitions.

       *      an increase of $214,107, or approximately 234%, in bad debt
              expense. The primary cause of this increase relates to $181,517 of
              payroll tax payments made by us to Florida Employer Solutions,
              Inc. the company that we had engaged to provide payroll services
              and file quarterly payroll tax returns for part of fiscal year
              2005. Florida Employer Solutions did not make the corresponding
              payments to the IRS. The balance of $32,590 is attributable to our
              inability to collect certain trade receivables in fiscal 2005. We
              anticipate that bad debt expense will remain relatively constant
              during the balance of fiscal 2006, subject to increase should we
              acquire additional businesses.

                                       24


<PAGE>
       *      an increase of $404,251, or approximately 41% in other general and
              administrative expenses. Of the total, 1,379,496 of other general
              and administrative expenses of for fiscal year 2005, $742,271 or
              approximately 54% is attributable to Beverage Network of Maryland,
              Inc. The increase In Maryland's expenses from fiscal year 2005 to
              fiscal year 2004, of $379,247 is due to timing of the acquisition
              of Master Distributors, Inc in July of 2004. The decrease in other
              general and administrative expenses for our Connecticut,
              Massachusetts, and Hawaiian operations relates to the decline in
              our sales and operations for those businesses. Working capital
              shortages during fiscal year 2005 affected our ability to maintain
              sufficient product inventory in these operations.

       *      an increase in impairment expense, of $1,163,830 reported in
              fiscal year 2005 for which there is no comparable expense for the
              fiscal year 2004. This is primarily attributable to the write-off
              of $273,830 in goodwill associated with the customer lists of our
              subsidiary Beverage Network of Massachusetts, Inc. and $890,000 in
              goodwill associated with the customer lists of our subsidiary
              Beverage Network of Maryland, Inc. It was determined that these
              intangibles have no future economic value to the corporation and
              that an impairment expense should be reflected in the results of
              fiscal year 2005.

       *      We reported a loss from operations of $8,363,981 for fiscal year
              2005 as compared to a loss from operations for fiscal year 2004 of
              $6,959,446.

Total other income/(expense) for fiscal year 2005 increased $14,283,891, or
approximately 181%. This increase is primarily attributable to:



       *      an increase in other income of $250,055 which was primarily
              attributable to forfeited bottle deposits in the amount of
              $114,938 that were acquired with our Connecticut and Massachusetts
              acquisitions; $128,573 in contract termination fees from vendors
              in our Maryland operation and customer credit balances of $12,043
              originating in our South Florida and Connecticut operations, prior
              to acquisition.

       *      an increase in interest income of approximately $293,066 which was
              primarily attributable to the reversal of interest income on a
              forgiven subscription receivable in 2004 of $299,072, along with
              interest earned on the balance of restricted cash account of
              $7,532.

       *      an increase in interest expense of approximately $4,618,555 in
              fiscal 2005 compared to fiscal year 2004. Included in this
              increase was interest on notes payable, including stock issued as
              payment for interest along with amortization of debt discount to
              interest expense and amortization of capitalized funding costs. It
              also includes a $324,000 penalty due to our Series B Convertible
              Preferred Stockholders and $990,000 related to Laurus Master Fund,
              Ltd. relating to the late filing of our pending registration
              statement. We anticipate that our interest expense will increase
              significantly during the balance of fiscal 2006 due to interest at
              12% per annum payable on $3,019,500 of loan funds raised in our
              private placement between July 1st and December 31, 2005

       *      an increase of $18,420,824 of other income attributable to the
              change in fair value of derivatives triggered by the Laurus Master
              Fund transaction; the derivatives pertained to the Laurus note and
              underlying warrants; the Series B (Mezzanine Financing) and
              underlying warrants; the Convertible Term Loans and underlying
              warrants; and warrants issued for services.

       *      a gain on settlement of $8,741 for fiscal year 2005 as compared to
              a settlement gain of $63,737 for fiscal year 2004 that relates to
              settlements of overdue payments of accounts payable to certain of
              our vendors.

       *      We reported a net loss of $1,953,694 for fiscal year 2005.as
              compared to a net loss of $14,833,050 for the fiscal year 2004.

                                       25

<PAGE>
       *      We reported an unrealized loss on of $8,242,104 against the
              $15,000,000 subscription receivable resulting from the Cogent
              transaction.

       *      We recorded preferred stock dividends in fiscal year 2005 of
              $137,718 payable to our Series B Convertible Preferred Stock sold
              to the Stockholders in August 2004, as compared to $54,909 for the
              fiscal year 2004. In accordance with the designations, rights and
              preferences of the Series B Convertible Preferred Stock, we expect
              to record preferred stock dividends during the balance of fiscal
              2006.

       *      We reported a net loss available to Common Stockholders of
              $2,091,412 for fiscal year 2005 as compared to a net loss
              available to Common Stockholders of $14,887,959 for fiscal year
              2004.


LIQUIDITY AND CAPITAL RESOURCES

       Net cash used in operating activities for fiscal year 2005 was
$(2,929,367) as compared to $(3,534,338) for fiscal year 2004 and includes the
following:

       *      a decrease of $13,769,356 in our net loss.

       *      an increase of $214,107 in bad debt expense which relates to our
              current assessment of the collectability of our accounts
              receivable, and an increase in the number of customers paying
              C.O.D.

       *      an increase of $48,940 in depreciation which relates to fixed
              asset purchases during fiscal 2005 and a full twelve month
              reporting period for the Master Distributors acquisition (July 1,
              2004) which only reported six months of operations in 2004,

                                       26


<PAGE>

       *      an increase of $1,254,246 in amortization of deferred consulting
              and deferred fees which relates to an increase in expenses
              attributable to consulting agreements entered into during fiscal
              2005. These agreements provide for the issuance of shares of our
              common stock under long-term agreements,

       *      an increase of $2,724,401 in the amortization of debt discount and
              fees to interest expense relating to our outstanding $3,000,000
              principal secured convertible note, our Series B Convertible
              Preferred Stock and the convertible term loans,

       *      an increase of $197,393 in amortization of intangibles which is
              our customer lists, including a full twelve month reporting period
              for the acquired customer list from the Master Distributors
              acquisition on July 1, 2004,

       *      an increase of $1,189,800 in liquidated damages for the failure of
              the Company's Form SB-2 to be declared effective on a timely
              basis. These costs are payable to our Series B preferred
              shareholders and the Laurus Fund. As this registration statement
              remains pending, we anticipate that we will continue to incur
              additional penalties during the fiscal 2006 until such time as the
              registration statement is ultimately declared effective by the
              SEC.,

       *      an increase of $895,080 in amortization of capitalized funding
              costs attributable to the $3,000,000 principal convertible note,
              the Series B Convertible Preferred stock, swap transaction with
              Cogent Capital and debt financing costs related the Maxim Group. ,

       *      an increase of $166,821 in default premium penalties due to Laurus
              for the $3,000,000 principal secured convertible note

       *      a reduction of an aggregate of $499,564 in losses on conversion of
              debt, stock based settlement gain, stock based loan fee and
              interest income on subscription receivables for which no
              corresponding transactions occurred during the twelve months ended
              December 31, 2005,

       *      a decrease of $177,602 in stock based loan fees,

       *      a decrease of $573,915 of non-cash expenses related to an decrease
              in stock based compensation paid for services under short-term
              agreements,

       *      an increase of $884,592 for derivative resulting from the issuance
              of warrants issued for services under short-term agreements,

       *      a decrease of $18,420,864 for the change in fair value of
              derivative liabilities,

       *      an increase of $273,830 of impairment expense for the one-time
              write down of the entire remaining balance of customer lists and
              goodwill attributable to the Ayer Beverage acquisition and an
              increase of $890,000 of impairment expense for the write down of
              the value of customer lists and goodwill attributable to Beverage
              Network of Maryland, Inc,

       *      an increase in accounts receivable of $271,461 primarily due to a
              shortage of working capital to purchase inventory of third party
              brands.

       *      a decrease in inventory of $118,481 primarily due a shortage of
              working capital to purchase inventory ,

       *      an decrease of current and non-current assets of $145,091
              primarily due to an increase in prepaid expenses in Beverage
              Network of Maryland,

       *      a decrease in accounts payable of $40,162,

       *      an increase of $281,380 in accrued expenses which relates to
              salary accruals for officers due to a shortage of working capital
              and

       *      a decrease of $137,011 in other current and non-current
              liabilities which represents a decrease in tenant security
              deposits for sub-leased space at our Maryland distribution center;
              a decrease in bottle deposits .

       *      Net cash used in investing activities for fiscal year 2005 was
              $19,009 as compared to $715,688 for fiscal 2004. Of the change,
              $734,697, the amount of $101,804 reflects additions of property
              and equipment only. Most of the remaining balance , $659,503
              reflects the payments for the purchase of Ayer Beverage, Maui
              Juice brand and Master Distributors, net of cash acquired, during
              fiscal 2004 for which there were no comparable transactions in
              fiscal year 2005.

                                       27


<PAGE>

       *      Net cash provided by financing activities for fiscal year 2005 was
              $2,957,794 as compared to $4,282,588 for fiscal year 2004. This
              difference includes:

       *      an increase of 606,234 in capitalized funding costs,

       *      an increase in proceeds from non-related party loans of $699,416,

       *      a decrease in repayments of non-related party loans of $1,033,888,

       *      a net increase in the restricted portion of loan proceeds and
              disbursements of $905,542,

       *      a decrease in proceeds of related party notes of $32,500,

       *      a decrease in repayments of related party notes of $70,960,

       *      a decrease in proceeds from the sale of common stock, net of
              offering costs of $1,235,866

       *      a decrease of $2,160,000 from the sale of preferred stock. During
              the twelve months ended December 31, 2004 we closed both the sale
              of the $3,000,000 principal amount secured convertible note to
              Laurus Master Fund, Ltd. and the sale of shares of our Series B
              Convertible Preferred Stock to provide working capital for our
              company. We did record similar transactions during the six months
              ended September 30, 2005, instead relying upon the sale of short
              term notes as described later in this section under Recent
              Financing Transactions.

       On September 12, 2005 we received a notice of default under the terms of
two secured promissory notes issued by us to investors in the aggregate
principal amount of $300,000. These notes were due and payable by us on
September 1, 2005. As collateral for these notes Theodore Farnsworth, our CEO,
pledged 100,000 shares of our common stock owned by him. The note holders are

                                       28


<PAGE>
demanding payment of $328,813.50. As we have been unable to pay these amounts,
the note holders are entitled to foreclose on the collateral at any time. The
default under this note has created another event of default under the Secured
Convertible Term Note due Laurus Master Fund, Ltd. as well as under the
unsecured promissory notes in the principal amount of $3,019,500. On September
29, 2005 we received a notice of default from Morris Stodard and Master
Distributors, Inc. under the terms of an unsecured promissory note issued in
connection with our purchase of Master Distributors, Inc. as well as under an
employment agreement with Mr. Stodard. The note holder is demanding payment of
$517,735 which he asserts is the amount of outstanding principal and interest
due under the note, as well as amounts due under the employment agreement. The
default under this note has created another event of default under the Secured
Convertible Term Note due Laurus Master Fund, Ltd. as well as under the
unsecured promissory notes in the principal amount of $3,019,500. The defaults
were waived by Laurus Master Fund, L.P. in connection with the restructure of
our obligations to them in April 2006.

       We do not generate sufficient profit to pay our operating expenses. We
have historically relied on funds from financing transactions to provide capital
to pay our expenses and the terms of these transactions have resulted in
significant non-cash expense to us during fiscal 2005 and fiscal 2004. In
addition, the swap transaction entered into with Cognet Capital which is
described below may never result in any capital for us notwithstanding the
issuance of shares of our common stock which represented approximately 75% of
our issued and outstanding common stock.

       At December 31, 2005 we had cash on hand of approximately $94,000 and a
working capital deficit of approximately $15 million. In addition to the
foregoing, we have past due obligations and judgments of approximately $894,000.
We restructured our secured promissory note to Laurus Master Fund, L.P. in April
2006, but this restructure only resulted in additional available working capital
to us of approximately $259,000. In order to sustain our operations and grow our
company we will be required to raise significant additional capital. We do not
presently have any firm commitments for any additional capital and our financial
condition may make our ability to secure this capital difficult. There are no
assurances that we will be able to continue our business in which event
investors could lose their entire investment in our company.

                                       29


<PAGE>
Swap transaction

       In June 2005 we entered into a series of related agreements with Cogent
Capital Corp. and 16 institutional accredited investors pursuant to which we
issued 19,736,848 common shares at a purchase price of $0.76 per share in
exchange for a total of $15,000,000 in U.S. government bonds. The price per
common share was based on a discount of 20% from the closing price of the common
stock on May 26, 2005. The U.S. government bonds were issued at current market
value. In conjunction with this transaction, our company and Cogent Capital
Corp. entered into an escrow agreement with the investors pursuant to which an
aggregate of 15,789,472 shares of our common stock, as well as the $15,000,000
of U.S. government bonds, were deposited in escrow. The common shares provided
to the investors in exchange for the bonds were issued pursuant to an exemption
from registration under the Securities Act of 1933 by virtue of Section 4(2) of
that Act.

       In conjunction with this investment, we entered into an escrow agreement
with Cogent Capital and the investors under which the 15,789,472 shares, as well
as the bonds, were deposited with the designated escrow agent. In addition, we
entered into the following agreements with Cogent Capital:

       o      2002 Master Agreement conforming to the form of the International
              Swaps and Derivatives Association, Inc.;

       o      Credit Support Annex to the Master Agreement consistent with the
              ISDA form;

       o      Equity swap transaction letter of agreement; and

       o      Equity option transaction letter of agreement.

       Under the terms of the equity swap, the 15,789,472 common shares and the
bonds are maintained in escrow until the earlier of 42 months or such time as
all of these shares are covered by an effective registration statement filed
with the SEC.  We, however, are not obligated to register the common shares.  In
addition, we can unilaterally terminate the agreement by exercising the call
option for the common shares in escrow.

       At such time as we complete a registration statement covering the
19,736,848 shares of our common stock or the common shares have satisfied the
holding period under Rule 144(k) at June 10, 2007, whichever date occurs first,
we will have the right on a quarterly basis to have $2,500,000 in value of bonds
released from the escrow account.  To the extent that the closing price of the
common shares averaged over the last 10 trading days of each quarter annual
period does not equal or exceed $0.95 per share, we will be required to transfer
to Cogent Capital Group an amount equal to 1/6 of the sum represented by
15,789,472 multiplied by $0.95 less the price of the common shares averaged over
the last 10 days of each quarter annual period.  Any amount exceeding $0.95 per
share would be paid directly to us using the formula 1/6 of the price of the
common shares averaged over the last 10 days of each quarter annual period less
$0.95 multiplied by 15,789,472.  We also have the right pursuant to a call
option to acquire our common shares in escrow on June 10, 2007 at a price equal
to their fair market value at exercise of the option.  Cogent Capital Corp.
would remain collateralized on the equity swap by the bonds up to $15,000,000.
During the period of the escrow, Cogent Capital Corp. will also receive interest
on the amount of $15,000,000 at a rate equal to LIBOR +125 basis points, payable
monthly. As the escrowed bonds are released to us, the amount upon which that we
are paying interest reduces by a commensurate amount.

       As an initial entrance amount in the equity swap transaction, Cogent
Capital Corp. has received a payment of $300,000 and 1,381,579 shares of our
common stock, which are subject to

                                       30


<PAGE>
certain demand and piggyback registration rights, subject to deferral under
certain conditions.

       As a result of the issuance of the above securities, we were required to
make adjustments in the conversion and exercise prices of common shares
underlying various securities issued to investors in previous transactions based
upon an adjusted price of $0.76 per share.  While this transaction has not
generated any cash proceeds to us at this time, we believe that we may begin
receiving the financial benefit of this transaction in future periods.

       On December 23, 2005, we sold a secured term note to Broadlawn Master
Fund Ltd. in the amount of $100,000. The note had a maturity date of February
28, 2006 on which date the principal and an interest payment of $10,000 become
due and payable. The note was secured with 250,000 shares of our common stock,
we also issued a grant of 50,000 shares of common stock as an additional
consideration to the payee.

       On January 12, 2006, we sold a secured term note to Broadlawn Master Fund
Ltd. in the amount of $100,000. The note had a maturity date of March 12, 2006
on which date the principal and an interest payment of $10,000 become due and
payable. The note was secured with 250,000 shares of our common stock, we also
issued a grant of 75,000 shares of common stock as an additional consideration
to the payee.

       On February 2, 2006, we sold a secured term note to Broadlawn Master Fund
Ltd. in the amount of $100,000. The note had a maturity date of April 2, 2006 on
which date the principal and an interest payment of $10,000 become due and
payable. The note was secured with 250,000 shares of our common stock, we also
issued a grant of 75,000 shares of common stock as an additional consideration
to the payee.

       On February 2, 2006, we sold a secured term note to T2 Capital
Management, LLC. in the amount of $50,000. The note had a maturity date of April
2, 2006 on which date the principal and an interest payment of $5,000 become due
and payable. The note was secured with 125,000 shares of our common stock, we
also issued a grant of 37,500 shares of common stock as an additional
consideration to the payee.

       On March 9, 2006, we sold a secured term note to Broadlawn Master Fund
Ltd. in the amount of $200,000. The note had a maturity date of May 1, 2006 on
which date the principal and an interest payment of $20,000 become due and
payable. The note was secured with 1,000,000 shares of our common stock, we also
issued a grant of 300,000 shares of common stock as an additional consideration
to the payee

       On April 7 , 2006, XStream Beverage Network, Inc. and subsidiaries (the
"Company") completed a Securities Purchase Agreement with Laurus Master Fund,
Ltd., a Cayman Islands investment fund ("Laurus"), dated as of March 31, 2006,
to refinance certain existing obligations with Laurus and to provide the Company
with additional financing. The financing was structured through the sale of
three promissory notes by the Company; i.e., a secured non-convertible revolving
note (the "Revolving Note") in the principal amount of $4,000,000, a secured
convertible term note ("Term Note 1") in the principal amount of $2,000,000, and
a secured non-convertible term note ("Term Note 2") in the principal amount of
$4,000,000. The aggregate principal amount of the Notes is $10,000,000.

       The Revolving Note bears interest at the rate of prime plus 2% but the
rate shall not at any time be less than nine percent (9%) and  has a term of
three years. Funds up to $4,000,000 from this transaction will be made available
to the Company in accordance with a formula rate equal to 90% of the Company's
eligible accounts receivable and a further amount equivalent to 50% of the
Company's eligible inventory, which amounts are subject to periodic adjustment
by Laurus during the term of the Revolving Note in accordance with its terms.


                                       31


<PAGE>
       Term Note 1 bears interest at the rate of prime plus 1% but the rate
shall not at any time be less than nine percent (9%), has a term of three years
and is convertible into shares of the Company's common stock at a fixed
conversion price of $0.45 per share. Interest is payable at maturity.

       Term Note 2 bears interest at the rate of prime plus 2% but the rate
shall not at any time be less than nine percent (9%) and has a term of three
years. Gross proceeds of $2,000,000 were received under this note.  The first
interest payment is due on May 1, 2006.  Amortization of the principal amount
will commence on December 1, 2006 with payments of $75,000 due on the first day
of each month thereafter until November 1, 2007.  From December 1, 2007 through
November 1, 2008, monthly principal payments will increase to $137,500 and then
to $187,500 from December 1, 2008 until the maturity date, at which time all
outstanding balances under Term Note 2 become due and payable.

       The proceeds from Term Note 1 & 2 were disbursed as follows:

       1.     $3,486,192.01 to Laurus in satisfaction of all amounts due and
              payable including principal, interest and penalties, under the
              terms of a secured convertible term note dated May 14, 2006 issued
              to Laurus by the Company;
       2.     $227,500 as fees to Laurus;
       3.     $27,000 to Laurus for expenses; and
       4.     $259,307.99 to the Company for working capital.

       We have pledged all of our assets and common stock of our subsidiaries as
security for our obligation to Laurus, which continues from the prior term note
issued to Laurus.  In connection with this financing, we have also agreed to
file a Registration Statement with the Securities and Exchange Commission
covering the resale of the shares of common stock issuable upon the conversion
of the principal, interest and fees related to Term Note 1 within 45 days of the
agreement and obtain effectiveness within 90 days thereafter.

CRITICAL ACCOUNTING POLICIES

       The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

ITEM 7.      FINANCIAL STATEMENTS

       Our financial statements are contained in pages F-1 through F-40, which
appear at the end of this annual report.

ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE

       [NONE]


ITEM 8A.     CONTROLS AND PROCEDURES

       Our Chief Executive Officer who also serves as our principal financial
officer, has conducted an evaluation of the effectiveness of our disclosure
controls and procedures (as defined

                                       32


<PAGE>
in Rule 13a-14(c) promulgated under the Securities and Exchange Act of 1934, as
amended)as of a date (the "Evaluation Date") as of the end of the period covered
by this report. Based upon that evaluation, our Chief Executive Officer who also
serves as our principal financial officer has concluded that our disclosure
controls and procedures are effective in providing reasonable assurance that the
information required to be disclosed in this report has been recorded,
processed, summarized and reported as of the end of the period covered by this
report.

       During the period covered by this report, there have not been any changes
in our internal controls or, to our knowledge, in other factors that could
significantly affect our internal controls except as set forth below.

       On November 2, the Company filed an 8K report with the Securities and
Exchange Commission in which the Company made certain disclosures of triggering
events that accelerated or increased a direct financial obligation of the
Company, which disclosures were not made in a timely manner.

       As a result of the untimely disclosure, the Company determined that there
was a deficiency in its internal control over financial reporting as of July 1,
2005. The Company determined that such deficiency did not rise to the level of a
material weakness in its control over financial reporting. Our Chief Executive
Officer conducted an evaluation of the effectiveness of our disclosure controls
and procedures and has concluded that the Company needs the services of a
properly qualified and adequately experienced Chief Financial Officer. The
Company is actively seeking such services and as an interim measure, has sought
the advice of suitably qualified consultants as the need has arisen. However,
until such time as a properly qualified Chief Financial Officer is hired, we
will continue to have material weaknesses in our internal controls.


                                    PART III

ITEM 9.      DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
             COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

EXECUTIVE OFFICERS AND DIRECTORS

       NAME                      AGE                       POSITION
       ----                      ---                       --------

Theodore Farnsworth               44                Chairman of the Board and
                                                    Chief Executive Officer and
                                                    principal financial officer
Jerry Pearring                    45                President and a director
Barry Willson                     58                Vice Chairman of the Board,
                                                    Chief Scientific Officer,
                                                    Secretary and Treasurer

       Theodore Farnsworth.  Mr. Farnsworth has served as Chairman since
September 2001 and our Chief Executive Officer since November 2004. Mr.
Farnsworth also serves as our principal financial officer.  Previous thereto, he
served as Chairman and Founder of Farmbid.com, an

                                       33


<PAGE>
agricultural Internet portal site.  Previously, he was President of Fontal
Restaurant Group, Inc., parent of Burrito Grill restaurants and founder of the
Psychic Discovery Network.  Prior thereto, he was president of Cannon Marketing
Group, Inc., a company he founded in 1994, which became one of the premier
entries into the burgeoning pay-per-call industry and a parent for multiple
interactive ventures.

       Jerry Pearring.  Mr. Pearring has served as our President and a member of
our board of directors since April 2003 and he served as our Chief Executive
Officer from April 2003 until November 2004.  From March 2003 until its
acquisition by us in April 2003 Mr. Pearring was Treasurer of Total Beverage
Network, Inc.  From September 2001 until December 2002 Mr. Pearring was Senior
Vice President of Domestic Business for BEVsystems International, Inc. and from
February 1996 until August 2001 he was President and CEO of Total Quality
Beverage of New Hampshire.  From 1994 to 1996 Mr. Pearring was General Manager
of Nantucket Nectars of Washington D.C. Prior to that, he was National Sales
Manager of Soho Beverages, Inc. and in Sales and Marketing with Anheuser- Busch
in Washington, DC and Boston.

       Barry Willson.  Mr. Willson has served as our Vice Chairman, Chief
Scientific Officer, Secretary and Treasurer since April 2003. From March 2003
until its acquisition by us in April 2003 Mr. Willson was President of Total
Beverage Network, Inc.  From 2002 until the formation of Total Beverage Network,
Inc. Mr. Willson served as Technical Operations Manager of BEVsystems,
International, Inc., a company engaged in the manufacture of super-oxygenated
water.  From 1994 through 2002, Mr. Willson directed various projects at Drinks
International Management, a consulting company for operators in the
international beverage industry, where his clients included Cadbury Schweppes,
Royal Crown, Snapple and Sunkist. From 1986 through 1994, Mr. Willson served
as the Managing Director of Cadbury Schweppes Latin American Operations,
including the Mexican company-owned plants and distribution companies, where his
responsibilities included overseeing production, sales, marketing and
distribution of Crush, Schweppes, Sunkist, Canada Dry, Mott's and Hawaiian Punch
brands.

ADVISORY BOARD TO THE BOARD OF DIRECTORS

       In December 2003 our board of directors formed an Advisory Board whose
members are asked to make recommendations to our board of directors in their
particular area of expertise with respect to the practices, policies and
procedures of our company. We issued each member of the Advisory Board 50,000
shares of our common stock as compensation for their services to us, and each
member is paid on a project basis in accordance with their normal fee schedule.
The following individuals are members of the Advisory Board

       George C. Haas, Jr.   Mr. Haas has been with Haas Financial Corporation,
a New York investment banking firm, for nearly 45 years.  Prior to starting that
firm he held various executive positions with the Coca-Cola Company and PepsiCo.
As Vice President of U.S. Operations of PepsiCo, Mr. Haas was instrumental in
developing plans for bottler financing and for restructuring the U.S. franchise
network.  The formation of Haas Financial Corporation allowed him to act as an
independent industry expert in organizing major financing for PepsiCo's
independent bottlers which lead to his association with Coca-Cola Enterprises as
an independent negotiator during a time when Coco-Cola Enterprises purchased the
former franchises and converted them into company-owned operations.  Mr. Haas
graduated from Yale University.

       Foster Devereux. Mr. Devereux's career spans the world of investment
banking and the soft drink industry.  For 25 years he served as an officer and
director of Allen Company, a New York-based investment banking firm, which was a
major participant in global soft drink company financing.  For 10 years Mr.
Devereux owned and operated the "Squeeze" carbonated soft drink brand.  A
graduate of Williams College, Mr. Devereux was appointed by the Governor of
Massachusetts to be a Trustee of the Massachusetts College of Liberal Arts.


                                       34


<PAGE>
       Elizabeth Dunn, C.P.A. Ms. Dunn specializes in corporate, LLC,
partnership and individual taxes for many closely-held regional, national and
international businesses. Ms. Dunn served in both the audit and specialized tax
divisions of Ernst & Whinney and Arthur Young & Co. At Merrill Lynch she was
responsible for extensive corporate finance department functions, including
evaluating and providing current and prospective financial data for top
executives. Ms. Dunn earned a BBC from Pace University, Lubin School of
Business. She is a member of the American and Florida Institutes of Certified
Public Accountants.

       Richard Q. Armstrong. Mr. Armstrong has had a long and distinguished
career as a manager and senior executive in a variety of consumer product
businesses with particular emphasis in the beverage industry that culminated
with positions as President of Canada Dry International, Canada Dry Worldwide
and the combined companies of Canada Dry and Dr. Pepper. His storied career
began in consumer, packaged goods marketing at LifeSavers International and
several major advertising agencies in New York. Active in the wine and spirits
industry, he was managing director of LVMH US. Corporation, the U.S. subsidiary
of the French luxury good conglomerate. After successfully restructuring
regional Adirondack Beverages he returned to RQA Enterprises, his own investment
and consulting firm. An honors graduate of Bowdoin College, he presently sits on
the board of UBS Paine Webber Mutual Funds Group. He is a former Director of the
Board of the Fuqua School of Business Administration at Duke University.

       Morris Stoddard. From 1980 to 1997, Mr. Stoddard was General Manager and
partner of Central Distributing, Inc., a Maryland based Coors Beer distributor.
From 1997 to 1999 Mr. Stoddard was President and partner in DoMor, Inc., a non-
alcoholic beverage broker servicing the Mid-Atlantic states and from 1999 until
2004, he was General Manager and partner in Master Distributors, Inc., a non-
alcoholic beverage distributor based in Maryland servicing retail accounts in
Maryland, Washington, D.C. and Northern Virginia which we acquired in 2004.

DIRECTOR INDEPENDENCE, AUDIT COMMITTEE OF THE BOARD OF DIRECTORS AND AUDIT
COMMITTEE FINANCIAL EXPERT

       None of the member of our Board of Directors are "independent" within the
meaning of definitions established by the Securities and Exchange Commission.
As a result of our limited operating history and minimal resources, small
companies such as ours generally have difficulty in attracting independent
directors.  As we grow, in the future our Board of Directors intends to seek
additional members who are independent, have a variety of experiences and
backgrounds, who will represent the balanced, best interests of all of our
stockholders and at least one of which who is an "audit committee financial
expert" described below.

       Our Board of Directors has also not yet established an Audit Committee,
and the functions of the Audit Committee are currently performed by the entire
Board of Directors.  At such time as we expand our Board of Directors to include
independent directors, we intend to establish an Audit Committee of our Board of
Directors. We are not currently subject to any law, rule or regulation, however,
requiring that all or any portion of our Board of Directors include
"independent" directors, nor are we required to establish or maintain an Audit
Committee of our Board of Directors.

       None of our directors is an "audit committee financial expert" within the
meaning of Item 401(e) of Regulation S-B.  In general, an "audit committee
financial expert" is an individual member of the audit committee or Board of
Directors who:

       *      understands generally accepted accounting principles and financial
              statements,

       *      is able to assess the general application of such principles in
              connection with accounting for estimates, accruals and reserves,

       *      has experience preparing, auditing, analyzing or evaluating
              financial statements comparable to the breadth and complexity to
              our financial statements,

       *     understands internal controls over financial reporting, and

       *     understands audit committee functions.

                                       35


<PAGE>


       Our Board of Directors are presently comprised of individuals who were
integral in either the start-up of our company, as in the case of Mr.
Farnsworth, or that of acquired subsidiaries, as in the case of Messrs. Pearring
and Willson.  As discussed earlier in this section, at such time as we are able
to expand our Board of Directors to include independent directors those
additional directors will include at least one "audit committee financial
expert."

CODE OF ETHICS

       We have adopted a Code of Ethics and Business Conduct to provide guiding
principles to our principal executive officer, principal financial officer, and
principal accounting officer or controller of  our company in the performance of
their duties. Our Code of Ethics and Business Conduct also strongly recommends
that all directors and employees of our company comply with the code in the
performance of their duties.  Our Code of Ethics and Business Conduct provides
that the basic principle that governs all of our officers, directors and
employees is that  our business should be carried on with loyalty to the
interest of our note holders, stockholders, customers, suppliers, fellow
employees, strategic partners and other business associates. We believe that the
philosophy and operating style of our management are essential to the
establishment of a proper corporate environment for the conduct of our business.
A copy of our Code of Ethics and Business Conduct is included as Exhibit 14.1 to
this Annual Report.

       We are committed to a high standard of business conduct. This means
conducting business in accordance with the spirit and letter of applicable laws
and regulations and in accordance with ethical business practices. In
furtherance of the foregoing, our Code of Ethics and Business Conduct provides
that no principal executive officer, principal financial officer, or principal
accounting officer or controller, or persons performing similar functions shall
employ any device, scheme or artifice to defraud our company or any business
associate or engage in any act, practice or course of conduct that operates or
would operate as a fraud or deceit upon our company or any business associate.
Our Code of Ethics and Business Conduct, which also applies to all insiders and
their family members, is intended to help in this endeavor by providing a
statement of the fundamental principles that govern the conduct of our business.

       Generally, our Code of Ethics and Business Conduct provides guidelines
regarding:

       *      transactions with business associates,
       *      non-disclosure of information,
       *      preferential treatment and gifts,
       *      conflicts of interest,
       *      personal securities transactions,
       *      guarding corporate assets,
       *      corporate books and records,
       *      compliance with laws,
       *      document retention, and
       *      compliance with internal controls and disclosure controls.

       Mr. Barry Willson, our Vice Chairman and Chief Scientific Officer, has be
designated the compliance officer who is responsible for overseeing,
interpreting and monitoring compliance with our Code of Ethics and Business
Conduct.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

       We have no equity securities registered under Section 12(g) of the
Securities Exchange Act of 1934, and accordingly, our officers, directors and
principal stockholders are not required to file reports under Section 16(a) of
the Exchange Act.

                                       36


<PAGE>

ITEM 10.     EXECUTIVE COMPENSATION

       The following table summarizes all compensation recorded by us in each of
the last three fiscal years for our Chief Executive Officer and each other
executive officers serving as such (the "Named Executive Officers") whose annual
compensation exceeded $100,000.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                           Annual Compensation                         Long-term compensation
                           -------------------                         ----------------------

                                                              Awards                                  Payouts
                                                              ------                                  -------
Name                                                      Other                   Securities         All other
and                                                       Annual     Restricted   underlying  LTIP    compen-
principal                       Salary       Bonus       Compen-       stock       options/  payouts  sation
position             Year        ($)          ($)       sation ($)     awards      SARs (#)    ($)      ($)
--------             ----        ---          ---       ----------     ------      --------    ---      ---

<S>                  <C>      <C>          <C>          <C>          <C>           <C>          <C>    <C>
Ted Farnsworth,      2005     $120,000     $   --       $   --       $   --           --       -0-
Chairman of the      2004     $ 66,320     $   --       $   --       $675,000         --       -0-
                     2003     $115,000     $   --       $   --       $375,000         --       -0-      --
Board (1)            2002     $ 50,000     $   --       $   --       $   --           --       -0-      --

Jerry Pearring,      2005     $118,000     $   --       $   --       $   --           --       -0-
                     2004     $119,946     $   --       $   --       $337,500         --       -0-
President and        2003     $ 63,750     $   --       $   --       $   --           --       -0-      --
CEO(2)

Barry Willson,       2005     $118,000     $   --       $   --       $   --           --       -0-
                     2004     $126,123     $   --       $   --       $337,500         --       -0-
Vice Chariman,       2003     $ 63,750     $   --       $   --       $   --           --       -0-      --
Chief Scientific
Officer (3)

Edward Arioli        2003     $   --       $   --       $   --       $200,000         --        -0-     --
President (4)        2002     $ 25,000     $   --       $   --       $200,000         --        -0-     --
Officer

Steve Haglund        2003     $      0     $   --       $   --       $325,000         --        -0-     --
CEO (5)              2002     $ 50,000     $   --       $   --       $   --           --        -0-     --
</TABLE>

(1)    Mr. Farnsworth as served as our Chairman since September 2001 and our CEO
       since November 2004. In February 2004 we issued Mr. Farnsworth 250,000
       shares of our common stock, valued at $675,000, as a bonus.

(2)    Mr. Pearring served as our President and CEO from April 2003 until
       November 2004. In February 2004 we issued Mr. Pearring 125,000 shares of
       our common stock, valued at $337,500, as a bonus.

(3)    Mr. Willson has served as our Vice Chairman, Chief Scientific Officer,
       Secretary and Treasurer since April 2003. In February 2004 we issued Mr.
       Willson 125,000 shares of our common stock, valued at $337,500, as a
       bonus.

(4)    Mr. Arioli served as our President from September 2001 until April 2003
       and served as our Executive Vice President from April 2003 until June
       2003.

(5)    Mr. Haglund served as our CEO from February 2002 to June 2003.

DIRECTORS' COMPENSATION

       We do not have an established policy to provide compensation to members
of our Board of Directors for their services in that capacity.

                                       37


<PAGE>

COMPENSATION OF THE ADVISORY BOARD

       Upon an individual joining our Advisory Board, we issue that individual
2,500 shares of our common stock. We have also agreed to pay the Advisory Board
members for their time spent on our behalf.  Ms. Elizabeth Dunn is paid monthly
payment for her services at the rate of $250 per hour, plus $120 per hour for
her associate and $75 per hour for her bookkeeper who may provide support
services to her.  In addition, we reimburse Ms. Dunn for all reasonable out-of-
pocket expenses incurred by her relating to her services to use, including
attending Advisory Board meetings. All other Advisory Board members are
compensation for services rendered to us not exceeding $1,000 per day spent in
our service and reimburse for out of pocket expenses. We may also provide
additional compensation to Advisory Board members in amounts to be agreed upon
for performance of extraordinary services on our behalf.

EMPLOYMENT AGREEMENTS

       Effective February 5, 2004, we entered into Revised Employment Agreements
with each of Messrs. Theodore Farnsworth, Jerry Pearring and Barry Willson, our
executive officers and members of our Board of Directors.  Under the terms of
these Revised Employment Agreements, Mr. Farnsworth is to serve as our Chairman
of the Board, Mr. Pearring is to serve as our President and CEO and Mr. Willson
is to serve as our Vice-Chairman of the Board, Secretary and Treasurer.  All
other terms and conditions of the Revised Employment Agreements between our
company and each of Messrs. Farnsworth, Pearring and Willson are identical and
include the following:

       *      the term of the agreement is from February 5, 2004 until December
              31, 2007, subject to earlier termination as described below. The
              agreement renews automatically on a continuing annual basis,
              subject to 30 day notice by either party of its election not to
              renew. If either Xstream or the executive wishes to modify the
              terms of the agreement in conjunction with an annual renewal after
              the expiration of the initial term, the agreement provides for a
              procedure and time frame to initiate and conclude negotiations. If
              the negotiations are not acceptable to both parties, or if the
              non-initiating party determinates not to enter the negotiations to
              modify the terms of the agreement, then the agreement expires at
              the end of the then current annual term, subject to earlier
              termination as described below;

       *      each executive is paid an annual base salary of $130,000 during
              the first year of the agreement, together with bonuses as may be
              determined by XStream during the term of the agreement. The
              agreements provide that the executive is entitled to participate
              in any benefits generally made available to all other employees of
              our company, including medical, disability and life insurance
              plans. The agreements also provide that the executive is entitled
              to four weeks paid vacation, an $800 per month automobile
              allowance and reimbursement for certain expenses;

       *      we can terminate the agreement:

       *      for cause, which is defined in the agreement to mean:

       *      the inability of the employee, through sickness or other
              incapacity, to discharge his duties under the agreement for 90 or
              more consecutive days or 180 or more days out of a period of 270
              days;

       *      the failure of the employee to abide by the directions of our
              board of directors;

       *      dishonesty; theft; insubordination or conviction of a crime; or

       *      a material default in the performance of the employee's
              obligations, services or duties required under the agreement
              (other than due to illness) or material breach of any provision

                                       38


<PAGE>
              of the agreement, which has not been completely remedied within
              five days after written notice of the default or breach.

       *      upon the death of the executive, or

       *      if we discontinue operating our business.

       In the event of a termination of the agreement for the executive's
failure to abide by the directions of the board of directors or the executive's
dishonesty, theft, insubordination or conviction of a crime, we are not
obligated to pay the executive any severance upon termination.  In the event the
agreement is terminated for any other reason, including the executive's
inability to discharge his duties or a material default by the executive in the
performance of obligations under the agreement or a material breach of any term
of the agreement, upon termination we are obligated to pay the executive an
amount equal to the greater of 200% of his then current base salary and provide
him with continued participation in any medical, life and disability programs in
which he was participating at the time of termination for an additional year,

       *      in the event of a change of control of Xstream, which is defined
              in the agreement as the occurrence of any event resulting in the
              current control stockholders individually or collectively
              beneficially owning less than 50% of the then outstanding common
              stock, the executive has the option at any time after the change
              of control to terminate the agreement and receive compensation
              equal to 2.99 times his then current base salary, less any salary
              paid from the date of the change of control through the
              termination date. At the executive's option, this severance
              payment can be made in installments or in a single, lump sum
              payment, and

       *      the agreements contain customary non-disclosure, exclusivity, non-
              circumvent and non-compete provisions.

       In February 2004 we issued Messrs. Farnsworth, Pearring and Willson an
aggregate of 500,000 shares of our common stock, valued at $1,350,000, as a
bonus.  In this issuance, Mr. Farnsworth received 250,000 shares, Mr. Pearring
received 125,000 shares and Mr. Willson received 125,000 shares.

STOCK OPTION INFORMATION

       The following table sets forth certain information  with respect to stock
options granted in fiscal 2005 to the Named Executive Officers.

                 Option Grants in Year Ended December 31, 2005
                              (individual grants)
<TABLE>
<CAPTION>

                     NO. OF SECURITIES      % OF TOTAL OPTIONS/SARs
                    UNDERLYING OPTIONS      GRANTED TO EMPLOYEES     EXERCISE    EXPIRATION
     NAME             SARs GRANTED              IN FISCAL YEAR        PRICE         DATE
     ----             ------------              --------------        -----         ----

<S>                   <C>                    <C>                      <C>         <C>
Theodore Farnsworth          0                       n/a                n/a          n/a

Jerry Pearring               0                       n/a                n/a          n/a

Barry Willson                0                       n/a                n/a          n/a

</TABLE>


                                       39


<PAGE>
       The following table sets forth certain information regarding stock
options held as of December 31, 2005 by the Named Executive Officers.

           Aggregate Option Exercises in Year Ended December 31, 2005
                           and Year-End Option Values
<TABLE>
<CAPTION>

                                                    NO. OF SECURITIES
                                                  UNDERLYING UNEXERCISED       VALUE OF UNEXERCISED
                           SHARES                      OPTIONS AT            IN-THE-MONEY  OPTIONS AT
                          ACQUIRED    VALUE       DECEMBER 31, 2005(5)           DECEMBER 31, 2005
                             ON     REALIZED   ---------------------------   --------------------------
NAME                      EXERCISE      $      EXERCISABLE   UNEXERCISABLE   EXERCISABLE  UNEXERCISABLE
----                      --------  --------   -----------   -------------   -----------  -------------

<S>                          <C>       <C>        <C>           <C>            <C>         <C>
Theodore Farnsworth          0         n/a          0             0              n/a         n/a

Jerry Pearring               0         n/a          0             0              n/a         n/a

Barry Willson                0         n/a          0             0              n/a         n/a
</TABLE>

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       At March 31, 2006, there were 35,802,211 shares of our common stock,
200,000 shares of our Series A Cumulative Convertible Voting Preferred Stock and
49.33 shares of Series B Convertible Preferred Stock issued and outstanding.
Our common stock and Series A Cumulative Convertible Voting Preferred Stock are
our only classes of our voting securities; the holders of Series B Convertible
Preferred Stock have no voting rights except in limited instances in which their
rights pursuant to the designations, rights and preferences of the Series B
Convertible Preferred Stock could be changed or materially adversely affected.
Each share of common stock has one vote per share, and each share of Series A
Cumulative Convertible Voting Preferred Stock has five votes per share.  The
following table sets forth, as of March 15, 2005, information known to us
relating to the beneficial ownership of these shares by:

       -      each person who is the beneficial owner of more than 5% of the
              outstanding shares of the class of stock;
       -      each director;
       -      each executive officer; and
       -      all executive officers and directors as a group.

       Unless otherwise indicated, the business address of each person listed is
in care of,3511, W. Commercial Bld, Suite 209, Fort Lauderdale, Florida 33309.
We believe that all persons named in the table have sole voting and investment
power with respect to all shares beneficially owned by them. Under securities
laws, a person is considered to be the beneficial owner of securities he owns
and that can be acquired by him within 60 days from March 31, 2006 upon the
exercise of options, warrants, convertible securities or other understandings.
We determine a beneficial owner's percentage ownership by assuming that options,
warrants or convertible securities that are held by him, but not those held by
any other person and which are exercisable within 60 days of March 31, 2006 have
been exercised or converted.

Common Stock
<TABLE>
<CAPTION>

Name of                        Amount and Nature of     Percentage      Percent of
Beneficial Owner               Beneficial Ownership      of Class    Voting Control (1)
----------------               --------------------      --------    ------------------

<S>                 <C>               <C>                  <C>            <C>
Theodore Farnsworth (2)               312,773              0.9%           1.5%
Jerry Pearring(4)                     117,500              0.3%           0.5%
Barry Willson                         125,000              0.3%           0.5%
All officers and directors
  as a group (three persons)(2)       552,273              1.5%           2.6%
Laurus Master Fund, Ltd. (3)        1,786,530             4.99%           8.5%
</TABLE>


                                       40


<PAGE>

Series A Cumulative Convertible Voting Preferred Stock
<TABLE>
<CAPTION>

Name of                            Amount and Nature of      Percentage       Percent of
Beneficial Owner                   Beneficial Ownership       of Class     Voting Control
----------------                   --------------------       --------     --------------
(1)

<S>                <C>                   <C>                    <C>            <C>
Theodore Farnsworth(2)                   200,000                100%           6.3%
Jerry Pearring                                 0                 --            0.5%
Barry Willson                                  0                 --            0.5%
All officers and directors as
   a group (three persons)(2)(14)        200,000                100%           7.3%
</TABLE>

*      represents less than 1%

(1)    Percentage of Voting Control is based upon the number of issued and
       outstanding shares of our common stock and shares of our Series A
       Cumulative Convertible Voting Preferred Stock at March 31, 2006. At March
       31, 2006 the holders of our outstanding shares of common stock and Series
       A Cumulative Convertible Voting Preferred Stock were entitled to an
       aggregate of 21,012,737 votes at any meeting of our stockholders, which
       includes 20,012,737votes attributable to the outstanding shares of common
       stock and 1,000,000 votes attributable to the outstanding shares of
       Series A Cumulative Convertible Voting Preferred Stock. Each share of
       Series A Cumulative Convertible Voting Preferred Stock entitles the
       holder to five votes at any meeting of our stockholders and such shares
       will vote together with our common stockholders. 15,789,472 shares of
       common stock that are being held in escrow relating to the Cogent Capital
       Equity Swap do not have common stock voting rights so long as they remain
       in escrow.

(2)    Includes 12,773 shares of our common stock owned by Xstream Beverage,
       Inc., a company of which Mr. Farnsworth is the owner, and 200,000 shares
       of Series A Cumulative Convertible Voting Preferred Stock.

(3)    Laurus Master Fund, Ltd. does not presently own any shares of our common
       stock. Laurus Master Fund, Ltd. holds:

       *      a $3,000,000 principal amount secured convertible term note which
              is convertible into 2,000,000 shares of our common stock at a
              conversion rate of $1.50 per share,

       *      225,000 shares of our common stock issuable upon the exercise of a
              common stock purchase warrant with an exercise price of $6.40 per
              share for the first 75,000 shares, $7.80 per share for the next
              75,000 shares and $9.00 per share for the remaining 75,000 shares,

       *      22,500 shares of our common stock issuable upon the exercise of a
              common stock purchase warrant with an exercise price of $ 5.20 per
              share,

       *      125,000 shares of our common stock issuable upon the exercise of a
              common stock purchase warrant with an exercise price of $3.00 per
              share, and

       *      634,000 shares of our common stock issuable upon the exercise of
              common stock purchase warrants with an exercise price of $2.00 per
              share.

              Under the terms of the secured convertible term note and warrant
              purchased by Laurus Master Fund, Ltd., these warrants are not
              exercisable and this note is not convertible to the extent that
              (a) the number of shares of our common stock held by Laurus Master
              Fund, Ltd. and (b) the number of shares of our common stock
              issuable upon the exercise of the warrants and the conversion of
              the not would result in the beneficial ownership by Laurus Master
              Fund, Ltd. of more than 4.99% of our then outstanding common
              stock. Laurus Master Fund, Ltd. may waive these provisions, or

                                       41


<PAGE>
              increase or decrease that percentage, with respect to the warrants
              and/or the note on 75 day's prior notice to us, or without notice
              if we are in default under the note. At March 15, 2005 Laurus
              Master Fund, Ltd. beneficially owns 1,048,536 shares of our common
              stock underlying the note and warrants which convertible or
              exercisable, as the case may be, within 60 days. Laurus Capital
              Management, LLC is the entity that exercises voting and investment
              power on behalf of Laurus Master Fund, Ltd. Mr. David Grin and Mr.
              Eugene Grin are the natural persons who exercise voting power over
              Laurus Capital Management, LLC.


       (4)    Includes 10,000 shares of our common stock held by Mr. Pearring's
              minor children.

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


       In October 2004 Mr. Morris Stoddard, a principal shareholder, General
Manager of our Mid-Atlantic States operations and member of the Advisory Board
to our Board of Directors,  advanced us $137,000 under a demand note bearing
interest at 6% per annum.  We used these fund for general working capital. We
believe that the term of this loan was at least as beneficial to us as terms we
could obtain from an unaffiliated third party.

       In July 2004 we purchased the assets of Master Distributors, Inc. from
Morris Stoddard.  Mr. Stoddard has executed a five year contract with us to
oversee the management and growth of our Mid-Atlantic States business and to
serve as a member of the Advisory Board to our Board of Directors.  As
consideration for the purchase of the assets of Atlantic Beverage we issued
96,154 shares of our common stock and $570,000 in cash which was delivered at
closing, with an additional $554,648 in cash due by September 9, 2004, together
with a secured convertible promissory note for $2,000,000 payable in 60 equal
monthly payments and bearing 6% interest per annum and a separate $250,000
payment to be made in 12 equal weekly installments pursuant to the terms of the
purchase agreement.  The note is collateralized by the assets acquired, subject
to the first position interest of Laurus Master Fund, L.P.  The holder of the
secured convertible promissory note may, at his option, elected to receive
shares of our common stock valued at $5.20 per share in lieu of cash payments,
with the minimum conversion amount being $25,000.  As of March 15, 2005 we still
owed Master Distributors, Inc. $412,200 of the cash portion of the payment which
was due it on September 9, 2004, as well as certain amounts under the secured
convertible promissory note.  In January 2005 Master Distributors, Inc. agreed
to defer those amounts, and Mr. Stoddard agreed to defer amounts due him under
his employment agreement, until April 14, 2005.  As consideration for these
deferments, we issued or agreed to issue Mr. Stoddard and his assigns an
aggregate 390,000 shares of his common stock valued at $660,000.

       In March 2004 a principal shareholder of our company  who is neither an
officer nor a director advanced us $25,000 as a non-interest bearing demand
loan.  We used these funds for working capital.  We believe that the term of
this loan was at least as beneficial to us as terms we could obtain from an
unaffiliated third party.

                                       42


<PAGE>
                                    PART IV

ITEM 13.     EXHIBITS

       The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:

EXHIBIT NO.                      DESCRIPTION

2.1    Definitive Agreement and Plan of Reverse Acquisition between Geyser
       Group, Ltd. and Power Beverage Corp. (1)
3.1    Articles of Incorporation (2)
3.2    Certificate of Amendment to the Articles of Incorporation (2
3.3    Certificate of Amendment to the Articles of Incorporation (2)
3.4    Certificate of Amendment to the Articles of Incorporation (1)
3.5    Certificate of Amendment to the Articles of Incorporation (11)
3.6    Certificate of Amendment to the Articles of Incorporation (11)
3.7    Certificate of Amendment to the Articles of Incorporation (9)
3.8    Certificate of Amendment to the Articles of Incorporation regarding an
       increase in the number of authorized shares of common stock (13)
4.1    $3,000,000 principal amount secured convertible term note (8)
4.2    Common Stock Purchase Warrant (8)
4.3    Form of Series A Warrant (9)
4.4    Form of Series B Warrant (9)
4.5    Form of $0.76 common stock purchase warrant (11)
4.6    Form of unsecured subordinated 12% convertible promissory note (11)
4.7    Form of bridge loan promissory note (14)
4.8    Form of cashless warrant (14)
4.9    $2,000,000 principal amount secured convertible term note (16)
4.10   $4,000,000 principal amount secured non-convertible term note (16)
4.11   $4,000,000 principal amount secured revolving non-convertible term
       note (16)
10.1   2002 Stock Option Plan (3)
10.2   Employment Agreement between the Company and Theodore Farnsworth dated as
       of February 1, 2002 (3)
10.3   Promissory Note with EDA Family Limited Partnership (3)
10.4   Stock Exchange Agreement between Xstream Beverage Group, Inc. and the
       shareholders of Total Beverage Network, Inc. (4)
10.5   Purchase and Sale Agreement between Total Beverage Network, Inc. and
       Universal Florida Beverage Distributors, Inc. (4)
10.6   Asset Purchase and Sale Agreement between Beverage Network of Connecticut
       and Finish-Line Distributors, Inc. (5)
10.7   Consulting Agreement between Steve Haglund and Xstream Beverage Group,
       Inc. (5)
10.8   Consulting Agreement between Edward Arioli and Xstream Beverage Group,
       Inc. (5)
10.9   Asset Purchase Agreement dated March 1, 2004, by and among Beverage
       Network of Hawaii and Pacific Rim Natural Juice Company, Inc.(6)
10.10  Assignment of Trademark entered into between Xstream Brands, Inc. and The
       Maui Juice Company Inc. (6)
10.11  Business Consulting Agreement between Beverage Network of Hawaii, Inc.
       and Larry Lassek (6)
10.12  Assignment of Trademark entered into Between Xstream Brands, Inc. and
       Squeeze Beverage, Inc. (6)
10.13  Employment Agreement entered into between Xstream Beverage Group, Inc.
       and Theodore Farnsworth dated February 5, 2004 (6)
10.14  Employment Agreement entered into between Xstream Beverage Group, Inc.
       and Barry Willson dated February 5, 2004 (6)
10.15  Employment Agreement entered into between Xstream Beverage Group, Inc.
       and Jerry Pearring dated February 5, 2004 (6)
10.16  Asset Purchase Agreement dated March 15, 2004, by and among Beverage
       Network of Massachusetts, Inc. and Ayer Beverages, Inc. (7)
10.17  Securities Purchase Agreement dated May 14, 2004 between Xstream Beverage
       Group, Inc. and Laurus Master Fund, Ltd. (8)
10.18  Master Security Agreement (8)
10.19  Registration Rights Agreement (8)
10.20  Subsidiary Guaranty (8)
10.21  Grant of Security Interest in Patents and Trademarks (8)
10.22  Stock Pledge Agreement (8)
10.23  Funds Escrow Agreement (8)
10.24  Restricted Account Side Letter (8)
10.25  Restricted Account Agreement (8)
10.26  Lease for principal executive offices (11)
10.27  Letter agreement dated January 8, 2005 with Master Distributors, Inc.(11)

                                       43


<PAGE>
10.28  Distributorship Agreement between Master Distributors, Inc. and Welch
       Foods, Inc.(11)
10.29  Distribution Agreement between Master Distributors, Inc. and Tazo Tea
       Company (11)
10.30  Distribution Agreement between Master Distributors, Inc. and Hansen
       Beverage Company dated August 16, 2004 (11)
10.31  Form of Amended and Restated Escrow Agreement (12)
10.32  Form of ISDA 2002 Master Agreement (12)
10.33  Form of ISDA Credit Support Annex (11)
10.34  Form of letter agreement with Cogent Capital regarding equity option
       transaction (11)
10.35  Form of letter agreement with Cogent Capital regarding equity swap
       transaction (11)
10.36  Form of Escrow Agreement with Cogent Capital and Investors Bank & Trust
       Company (11)
10.37  Form of Registration Rights Agreement with Cogent Capital (11)
10.38  Form of Placement Agency Agreement with Maxim Group (10)**
10.39  Beverage Network of Hawaii lease agreement (14)
10.40  Form of Financial Advisory Agreement with Maxim Group (14)
10.41  Form of Amendment No. 1 to the Financial Advisory Agreement with Maxim
       Group
10.42  Form of Amendment No. 2 to the Financial Advisory Agreement with Maxim
       Group
10.43  Security and Purchase Agreement (16)
10.44  Registration Rights Agreement
10.45  Stock Pledge Agreement (16)
10.46  Grant of Security Interest in Patents and Trademarks (16)
10.47  Reaffirmation and Ratification Agreement and Amendment (16)
14.1   Code of Ethics and Business Conduct*
21     Subsidiaries of the registrant *
31.1   Section 302 Certificate of Chief Executive Officer *
31.2   Section 302 Certificate of principal financial officer *
32.1   Section 906 Certificate of Chief Executive Officer and principal
       financial officer*

*      filed herewith

(1)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on October 17, 2001.
(2)    Incorporated by reference to the registrant's Annual Report on Form 10-
       KSB as filed with the SEC on October 27, 1999.
(3)    Incorporated by reference to the registrant's Annual Report on Form 10-
       KSB as filed with the SEC on May 15, 2002.
(4)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on May 6, 2003.
(5)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on June 16, 2003.
(6)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on March 10, 2004.
(7)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on March 30, 2004.
(8)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on May 25, 2004.
(9)    Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on  August 5, 2004.
(10)   Incorporated by reference to the registrant's registration statement on
       Form SB-@ SEC file number 333-A9403, as amended.
(11)   Incorporated by reference to the registrant's registration statement on
       Form SB-2, SEC file number 333-119403, as amended.
(12)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on July 7, 2005.
(13)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on July 8, 2005.
(14)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on October 3, 2005.
(15)   Incorporated by reference to the registrant's Quarterly Report on Form
       10-QSB for the period ended March 31, 2005.
(16)   Incorporated by reference to the registrant's Report on Form 8-K as filed
       with the SEC on April 14, 2006.

                                       44


<PAGE>


ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES.

       Salberg & Company, P.A. served as our independent registered public
accounting firm for f the first three quarters of fiscal 2004.  Sherb & Co., LLP
was engaged on December 22, 2004 to serve as our independent registered public
accounting firm for fiscal 2004 and fiscal 2005.   The following table shows the
fees that we paid or accrued for the audit and other services provided by
Salberg & Company, P.A. and Sherb & Co., LLP for the 2004 and 2005 fiscal years,
respectively.

                                       Fiscal 2004        Fiscal 2005
                                       -----------        -----------

Audit Fees                              $ 80,347            $ 62,000
Audit-Related Fees                             0            $ 22,500
Tax Fees                                  57,125            $ 16,442
All Other Fees                            95,568                   0
                                          ------            --------
       Total                            $233,040            $100,942
                                        ========            ========

       Audit Fees - This category includes the audit of our annual financial
statements, review of financial statements included in our Form 10-QSB Quarterly
Reports and services that are normally provided by the independent auditors in
connection with engagements for those fiscal years. This category also includes
advice on audit and accounting matters that arose during, or as a result of, the
audit or the review of interim financial statements.

       Audit-Related Fees - This category consists of assurance and related
services by the independent auditors that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under "Audit Fees." The services for the fees disclosed under
this category include consultation regarding our correspondence with the SEC and
other accounting consulting.

       Tax Fees - This category consists of professional services rendered by
our independent auditors for tax compliance and tax advice. The services for the
fees disclosed under this category include tax return preparation and technical
tax advice.

       All Other Fees - This category consists of fees for audits of Finish-Line
Distributors, Ayer Beverages and Master Distributors and for other miscellaneous
items.

       Our Board of Directors has adopted a procedure for pre-approval of all
fees charged by the our independent auditors. Under the procedure, the Board
approves the engagement letter with respect to audit, tax and review services.
Other fees are subject to pre-approval by the Board, or, in the period between
meetings, by a designated member of Board. Any such approval by the designated
member is disclosed to the entire Board at the next meeting. The audit and tax
fees paid to the auditors with respect to fiscal year 2004 were pre-approved by
the entire Board of Directors.

                                       45


<PAGE>

                                   SIGNATURES

       In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Dated: April 24, 2006                         XSTREAM BEVERAGE GROUP, INC.

                                              By:   /s/ Theodore Farnsworth
                                                    -----------------------
                                              Theodore Farnsworth, Chairman of
                                              the Board, CEO, principal
                                              executive officer and principal
                                              financial officer

       In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


       Signature                    Title                           Date
       ---------                    -----                           ----

/s/ Theodore Farnsworth       Chairman and CEO,                April 24, 2006
------------------------      principal executive officer
Theodore Farnsworth           and principal financial officer


/s/ Jerry Pearring            President and                    April 24, 2006
------------------------      director
Jerry Pearring

/s/ Barry Willson             Vice Chairman and                April 24, 2006
------------------------      Chief Scientific Officer
Barry Willson

                                       46


<PAGE>

                         XSTREAM BEVERAGE NETWORK, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005


                          Xstream Beverage Network, Inc.
                                and Subsidiaries

                                    Contents

                                                                          Page

                                                                          ----

Report of Sherb & Co., LLP

Independent Registered Public Accounting Firm                              F-2

Consolidated Balance Sheet                                                 F-3

Consolidated Statements of Operations                                      F-4

Consolidated Statements of Changes in Stockholders'

   Deficiency                                                              F-5

Consolidated Statements of Cash Flows                                      F-6

Notes to Consolidated Financial Statements                                 F-7






                                       F-1


<PAGE>


[HERB & CO., LLP LOGO]
                                         1900 NW Corporate Blvd., Suite 210 East
                                                      Boca Raton, Florida 33431
                                                               Tel. 561-886-4200
                                                               Fax. 561-886-3330

                               e-mail:info@sherbcpa.com

                                                 Offices in New York and Florida

------------------------------------------------------------------------------
Certified Public Accountants

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Xstream Beverage Network, Inc.

We have audited the accompanying consolidated balance sheet of Xstream Beverage
Network, Inc.

 and Subsidiaries as of December 31, 2005, and the related consolidated
statements of operations, stockholders' deficiency and cash flows for the years
ended December 31, 2005 and 2004. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amount and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Xstream Beverage
Network, Inc. and Subsidiaries as of December 31, 2005, and the results of their
operations and their cash flows for the years ended December 31, 2005 and 2004,
in conformity with accounting principles generally accepted in the United States
of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company had net losses, accumulated
deficit and working capital deficit of $1,953,694, $33,845,843 and $15,353,740
respectively, for the year ended December 31, 2005. This raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

                                                    /s/Sherb & Co., LLP
                                                    Certified Public Accountants

Boca Raton, Florida
April 12, 2006

                                      F-2



<PAGE>

                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                             2005
                                                                                         ------------
<S>                                                                                      <C>
ASSETS

      Current Assets:
          Cash                                                                           $     93,744
          Accounts receivable, net of allowance for doubtful                                  464,787
          accounts of $142,297
          Other receivables                                                                    94,283
          Inventory                                                                           737,765
          Prepaid expenses                                                                     64,689
                                                                                         ------------
              Total current assets                                                          1,455,268
                                                                                         ------------
      Property and equipment                                                                  380,163
      Less: Accumulated depreciation                                                         (144,453)
                                                                                         ------------
      Property and equipment, net                                                             235,710
                                                                                         ------------
      Other Assets:

          Capitalized Funding Costs, net of accumulated amortization of $2,056,660          2,676,663
          Trademarks                                                                          303,017
          Customer lists, net of accumulated amortization of $606,033                       1,405,557
          Goodwill                                                                            892,315
          Other assets                                                                         56,483
                                                                                         ------------
              Total Other Assets                                                            5,334,035
                                                                                         ------------
Total Assets                                                                             $  7,025,013
                                                                                         ============
LIABILITIES & STOCKHOLDERS' DEFICIENCY
      Liabilities:
          Current Liabilities:

              Notes payable                                                              $    340,893
              Loans payable - related party                                                    50,355
              Convertible term loan, net of discount of $1,700,604                          2,191,792
              Current portion of long term debt, net of discount of $1,375,000              3,552,311
              Accounts payable                                                              1,629,439
              Overdraft liability                                                              16,153
              Accrued expenses                                                              3,354,768
              Dividends payable                                                                21,006
              Derviative Liability                                                          5,615,541
              Other current liabilities                                                        36,750
                                                                                         ------------
                  Total Current Liabilities                                                16,809,008
                                                                                         ------------
          Long Term Liabilities:
              Long term notes                                                                 142,042
              Preferred Series B ($0.001 par value, 59 Shares issued and outstanding),
              net of discount of $1,081,715                                                 1,078,285
                                                                                         ------------
                  Total long term liabilities                                               1,220,327

                                                                                         ------------
                  Total Liabilities                                                        18,029,335
                                                                                         ------------
      Stockholders' Deficiency
          Preferred Stock, $0.001 par value,
              Series A, 200,000 shares issued and outstanding                                     200
          Common Stock, $0.001 par value, 50,000,000 shares authorized,                        28,482
              28,482,057 issued and outstanding
          Additional paid in capital                                                       38,261,441
          Accumulated other comprehensive loss                                             (8,242,104)
          Accumulated deficit                                                             (33,845,843)
          Less: subscription receivable                                                    (6,289,722)
          Less: deferred costs                                                               (916,776)
                                                                                         ------------
                  Total stockholders' deficiency                                          (11,004,322)
                                                                                         ------------
TOTAL LIABILITIES & STOCKHOLDERS'  DEFICIENCY                                            $  7,025,013
                                                                                         ============
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>

                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            For the Years Ended December 31,
                                                                     2005                                   2004
                                                                                                    RESTATED - NOTE 1 (T)
                                                                 ------------                       ---------------------

<S>                                                              <C>                                      <C>
Sales                                                            $ 10,226,235                             $  8,583,622

Cost of goods sold                                                  8,442,312                                7,117,088
                                                                 ------------                             ------------
Gross profit                                                        1,783,923                                1,466,534
Expense
    Marketing & selling                                               902,410                                1,103,254
    Compensation                                                    1,894,975                                4,279,046
    Rent                                                              321,670                                  257,378
    Consulting fees                                                 3,807,728                                1,289,783
    Professional fees                                                 372,200                                  429,786
    Bad debt expense                                                  305,595                                   91,488
    Other general & administrative                                  1,379,496                                  975,245
    Impairment expense                                              1,163,830                                       --
                                                                 ------------                             ------------
        Total operating expense                                    10,147,904                                8,425,980
                                                                  ------------                             ------------
Loss from operations                                               (8,363,981)                              (6,959,446)
Other Income/(Expense)
    Other income                                                      255,654                                    5,599
    Interest income                                                     1,526                                   21,532
    Forgiveness of accrued interest on subscription receivable             --                                 (313,072)
    Interest expense                                               (8,016,416)                              (3,397,861)
    Change in fair value of derivative                             14,160,487                               (4,260,337)
    Settlement gain, (loss)                                             8,741                                   63,737
    Other expense                                                      (1,705)                                   6,798
    Gain on disposal of fixed assets                                    2,000                                       --
                                                                 ------------                             ------------
        Total other income/(expense)                                6,410,287                               (7,873,604)
                                                                 ------------                             ------------
Net loss                                                           (1,953,694)                             (14,833,050)
                                                                 ------------                             ------------

Unrealized loss on subscription receivable                       $ (8,242,104)                            $         --
                                                                 ------------                             ------------
Comprehensive loss                                                (10,195,798)                             (14,833,050)
                                                                 ============                             ============
Preferred stock dividends                                            (137,718)                                 (54,909)
                                                                 ------------                             ------------

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS                        $ (2,091,412)                            $(14,887,959)
                                                                 ============                             ============

Net Loss per share - Basic and diluted                           $      (0.13)                            $      (6.71)
                                                                 ------------                             ------------

Weighted Average Shares Outstanding -Basic and diluted             16,674,358                                2,219,814
                                                                 ------------                             ------------
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>

                 Xstream Beverage Network, Inc. and Subsidiaries
                Statement of Changes in Stockholders' Deficiency
                 For the Years Ended December 31, 2005 and 2004

<TABLE>
<CAPTION>
                                           Preferred Stock        Common Stock         Common Stock      Additional
                                         ------------------  ---------------------  ------------------     Paid-in     Accumulated
                                          Shares     Amount    Shares      Amount    Issuable   Amount     Capital       Deficit
                                         --------    ------  ----------    -------  ----------  ------   ------------  ------------
<S>                                       <C>        <C>       <C>         <C>        <C>       <C>      <C>           <C>
Balance, December 31, 2003                200,000    $  200    1,013,815   $  1,014    70,647   $   70   $ 18,440,558  $(16,866,472)

Common Stock issued for cash                   --        --     646,507         647   154,583      155      1,921,815            --
Preferred Stock issued for cash                43        --          --          --        --       --             --            --
Offering Costs                                 --        --          --          --        --       --       (686,750)           --
Stock issued for settlement                    --        --      16,268          16        --       --         81,322            --
Stock issued for services                      --        --     309,000         309    162,778     163      1,039,317            --
Stock issued for compensation                  --        --     587,098         587         --      --      1,558,448            --
Stock issued for loan fee                      --        --          --         --          --      --             --            --
Stock issued for Offering Costs                --        --          --         --          --      --             --            --
Interest on promissory note
  subscription receivable                      --        --          --         --          --      --             --            --
Cancellation of subscription                   --        --    (213,375)      (213)         --      --     (2,133,537)           --
Stock issued for acquisition                   --        --     169,904        170          --      --        407,599            --
Issuance of shares  previously issuable        --        --     207,158        207    (207,158)   (207)            --            --
Stock issued for debt                          --        --      61,250         61          --      --        146,940            --
Amortization of deferred fees                  --        --          --         --          --      --             --            --
Dividends - Preferred Stock                    --        --          --         --          --      --             --       (54,909)
Net Loss, 2004                                 --        --          --         --          --      --             --   (14,833,050)
                                         --------    ------  ----------    -------  ----------  ------   ------------  ------------
Balance, December 31, 2004                200,043       200   2,797,625      2,798     180,850     181     20,775,712   (31,754,431)
                                         --------    ------  ----------    -------  ----------  ------   ------------  ------------
Stock issued for services                      10        --   4,269,057      4,269          --      --      3,084,341            --
Stock issued for loan fee                      --        --     541,950        542          --      --        539,929            --
Stock issued as pledge of collateral           --        --     350,000        350          --      --           (350)           --
Issuance of shares  previously issuable        --        --     180,850        181    (180,850)   (181)            --            --
Stock issued for Preferred
  Series B Conversion                          (5)       --     343,421        343          --      --           (343)           --
Stock issued for Dividends &
  Liquididated Damages                         11        --          --         --          --      --        528,845            --
Stock cancelled & returned to Treasury         --        --      (1,000)        (1)         --      --              1            --
Stock issued for Cogent Equity Swap            --        --  19,736,848     19,737          --      --     14,980,263            --
Stock issued for Exercise of Warrants          --        --     263,306        263          --      --           (263)           --
Discount on Cogent Equity Swap                 --        --          --         --          --      --       (468,174)           --
Expenses on Cogent Transaction                 --        --          --         --          --      --     (1,178,520)           --
Amortization of deferred fees                  --        --          --         --          --      --             --            --
Dividends-Preferred Stock                      --        --          --         --          --      --             --      (137,718)
Accumulated other comprehensive loss           --        --          --         --          --      --             --            --
Net Loss, 2005                                 --        --          --         --          --      --             --    (1,953,694)
                                         --------    ------  ----------    -------  ----------  ------   ------------  ------------
Balance, December 31, 2005                200,059    $  200  28,482,057    $28,482   $      --  $   --   $ 38,261,441  $(33,845,843)
                                         --------    ------  ----------    -------  ----------  ------   ------------  ------------
</TABLE>


[RESTUBBED TABLE]

<TABLE>
<CAPTION>
                                                                                                Subscription
                                     Comprehensive     Deferred      Deferred      Deferred    Promissory Note
                                         Loss         Consulting   Compensation      Fees        Receivable         Total
                                     ------------    -----------   -----------    -----------    ------------    ------------
<S>                                  <C>              <C>           <C>         <C>            <C>             <C>
Balance, December 31, 2003                     --     $  (75,750)         --    $  (375,000)   $ (2,432,792)   $ (1,308,172)

Common Stock issued for cash                   --             --          --             --              --       1,922,617
Preferred Stock issued for cash                --             --          --             --              --              --
Offering Costs                                 --             --          --             --              --        (686,750)
Stock issued for settlement                    --             --          --             --              --          81,338
Stock issued for services                      --       (875,507)         --             --              --         164,282
Stock issued for compensation                  --             --     (34,500)            --              --       1,524,535
Stock issued for loan fee                      --             --          --             --              --              --
Stock issued for Offering Costs                --             --          --             --              --              --
Interest on promissory note
  subscription receivable                      --             --          --             --         (14,030)        (14,030)
Cancellation of subscription                   --             --          --             --       2,446,822         313,072
Stock issued for acquisition                   --             --          --             --              --         407,769
Issuance of shares  previously issuable        --             --          --             --              --              --
Stock issued for debt                          --             --          --             --              --         147,001
Amortization of deferred fees                  --        531,257      34,500        375,000              --         940,757
Dividends - Preferred Stock                    --             --          --             --              --         (54,909)
Net Loss, 2004                                 --             --          --             --              --     (14,833,050)
                                     ------------    -----------     -------    -----------    ------------    ------------
Balance, December 31, 2004                     --       (420,000)         --             --              --     (11,395,540)
                                     ------------    -----------     -------    -----------    ------------    ------------

Stock issued for services                      --     (1,973,707)         --             --              --       1,114,903
Stock issued for loan fee                      --             --          --       (343,073)             --         197,398
Stock issued as pledge of collateral           --             --          --             --              --              --
Issuance of shares  previously issuable        --             --          --             --              --              --
Stock issued for Preferred
  Series B Conversion                          --             --          --             --              --              --
Stock issued for Dividends &
  Liquididated Damages                         --             --          --             --              --         528,845
Stock cancelled & returned to Treasury         --             --          --             --              --              --
Stock issued for Cogent Equity Swap            --             --          --             --     (15,000,000)             --
Stock issued for Exercise of Warrants          --             --          --             --              --              --
Discount on Cogent Equity Swap                 --             --          --             --         468,174              --
Expenses on Cogent Transaction                 --             --          --             --              --      (1,178,520)
Amortization of deferred fees                  --      1,631,167          --        188,837              --       1,820,004
Dividends-Preferred Stock                      --             --          --             --              --        (137,718)
Accumulated other comprehensive loss   (8,242,104)            --          --             --       8,242,104              --
Net Loss, 2005                                 --             --          --             --              --      (1,063,694)
                                     ------------    -----------     -------    -----------    ------------    ------------
Balance, December 31, 2005           $ (8,242,104)   $  (762,540)         --    $  (154,236)   $ (6,289,722)   $(10,114,322)
                                     ------------    -----------     -------    -----------    ------------    ------------
</TABLE>

           See accompanying notes to consolidated financial statements

                                       F-5

<PAGE>

                 XSTREAM BEVERAGE NETWORK INC. and SUBSIDIARIES

                             CONSOLIDATED CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                              2005           2004
                                                                         ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                      <C>             <C>

Net Loss                                                                 $ (1,953,694)    (14,833,050)

Adjustments to reconcile net cash and operations:

Bad debt                                                                      305,595          91,488
Depreciation                                                                   92,477          43,537
Amortization of deferred consulting and compensation                        1,820,004         565,757
Amortization of debt discount to interest expense                           3,666,543         942,142
Amortization of intangibles                                                   424,485         227,112
Liquidated damages for failure to timely file registration statement        1,314,000         124,200
Amortization of capitalized funding Costs                                   1,475,870         580,790
Default premium - Laurus Master Fund                                          166,821              --
Loss on conversion of debt                                                         --          23,921
Stock based settlement gain/loss                                                   --          (3,000)
Stock based loan fee                                                          197,398         375,000
Other interest                                                                     --           1,101
Interest income on subscription receivable                                         --         299,041
Stock based services                                                        1,114,903       1,688,818
Fair value of derivative liabilities - services                             1,031,922       1,916,514
Change in fair value of derivative liability                              (14,160,487)      4,260,377
Impairment of intangibles                                                   1,163,830              --

Changes in operating assets and liabilities:

Accounts receivable                                                           192,419         (79,042)
Inventory                                                                      87,658         206,139
Other current and non-current assets                                         (130,758)        (42,299)
Accounts payable                                                              (73,489)       (113,651)
Accrued expenses                                                              413,983         132,603
Other current and non-current liabilities                                     (78,847)         58,164
                                                                         ------------    ------------

Net cash used in operating activities                                      (2,929,367)     (3,534,338)

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment                                         (19,009)        (82,795)
Decrease  in other non-current assets                                              --          26,610
Payment for purchase of Ayer Beverage, net of cash acquired                        --        (100,000)
Payment for purchase of Maui Juice Brand, net of cash acquired                     --         (25,000)
Payment for purchase of Pacific Rim, net of cash acquired                          --         (15,500)
Payment for purchase of Master Distributors, net of cash acquired                  --        (519,003)
                                                                         ------------    ------------
Net Cash used in investing activities                                         (19,009)       (715,688)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from related party loans                                                  --          32,500
Repayments of related party loans                                            (136,000)       (206,960)
Proceeds from non-related party loans                                       3,844,500       3,145,084
Repayments of non-related party loans                                        (466,243)     (1,500,131)
Capitalized funding costs                                                    (737,234)       (131,000)
Restricted cash portion of loan proceeds                                           --      (2,451,154)
Disbursement of restricted cash                                               452,771       1,998,383
Proceeds from sales of common stock                                                --       1,922,616
Offering costs                                                                     --        (686,750)
Proceeds from sales of preferred stock                                             --       2,160,000
                                                                         ------------    ------------

Net cash provided by financing activities                                   2,957,794       4,282,588
Net cash increase (decrease)                                                    9,418          32,562
Cash at beginning of year                                                      84,326          51,764
                                                                         ------------    ------------
Cash at end of year                                                      $     93,744    $     84,326
                                                                         ============    ============
</TABLE>
<TABLE>
<CAPTION>

                                                                              2005           2004
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
Supplemental Disclosure of Cash Flow Information:


Cash paid during the period for:

     Interest paid                                                       $    355,438    $    117,602
     Taxes paid                                                          $         --    $         --


Supplemental Disclosure of Non-cash Investing and
Financing Activities:

Common stock issued for acquisitions                                     $         --    $    407,769
Common stock issued for debt conversion                                  $         --    $    147,001
Common stock issued for debt settlement                                  $         --    $     81,338
Cancellation of common stock for subscription receivable                 $         --    $  2,446,822
Common stock issued for deferred services                                $  1,973,707    $    875,507
Common stock issued for deferred fees                                    $    343,073    $         --
Fair value of common stock issued related to Cogent tansaction           $ 15,000,000    $         --
Accrual for deferred financing fees related to Cogent transaction        $  1,178,520    $         --
Fair value of derivative liabilities associated with debt discount       $  3,606,146    $  5,160,000
Fair value of derivatives associated with deferred financing fees        $    625,568    $  3,239,521
Common stock issued for deferred compensation                            $         --    $     34,500
Preferred stock issued for payment of dividends and liquidated damages   $    528,845    $         --
Dividends - preferred stock                                              $    137,718    $     54,909
                                                                         ------------    ------------
                                                                           23,393,577      12,447,367
                                                                         ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6


<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------------------------

         (A) ORGANIZATION AND NATURE OF BUSINESS
         ---------------------------------------

         Xstream Beverage Network, Inc. (XStream) is an operating brand
         development and distribution company and completed the first five
         acquisitions anticipated in its business strategy as follows:

         Beverage Network of South Florida, ("BNSF)          April 9, 2003
         Beverage Network of Connecticut, Inc. ("BNCT")        May 1, 2003
         Beverage Network of Hawaii ("BNHI")                 March 1, 2004
         Beverage Network of Massachusetts ("BNMA")         March 15, 2004
         Beverage Network of Maryland, Inc. ("BNMD")          July 1, 2004

         These acquisitions were accounted for under the purchase method.

         (B) PRINCIPLES OF CONSOLIDATION
         -------------------------------

         The accompanying consolidated financial statements include the accounts
         of XStream and its subsidiaries. All material intercompany balances and
         transactions have been eliminated in consolidation.

         (C) USE OF ESTIMATES
         --------------------

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States requires management
         to make estimates and assumptions that affect the reported amounts of
         assets and liabilities and disclosure of contingent assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenue and expenses during the reporting period. Estimates
         are used when accounting for allowances for doubtful accounts,
         inventory reserves, depreciation and amortization, taxes, contingencies
         and impairment allowances. Such estimates are reviewed on an on-going
         basis and actual results could differ from those estimates.

         (D) ACCOUNTS RECEIVABLE
         -----------------------

         Accounts receivable result from the sale of the Company's products and
         is reported at anticipated realizable value. The Company estimates its
         allowance for doubtful accounts based on a specific identification
         basis and additional allowances as needed based upon historical
         collections experience. Accounts receivable is considered past due if
         payment has not been received from the customer within thirty days and
         management reviews the customer accounts on a routine basis to
         determine if an account should be reserved.

         (E) PROPERTY AND EQUIPMENT
         --------------------------

         Property and equipment are stated at cost, and depreciation is computed
         using the straight line method over the estimated economic useful life
         of 5 years. Leasehold improvements are amortized using the
         straight-line method over the lease term. Maintenance and repairs are
         charged to expense as incurred. Major improvements are capitalized.

         (F) GOODWILL, TRADEMARKS AND OTHER INTANGIBLES
         ----------------------------------------------

         Acquired goodwill is considered to have an indefinite life pursuant to
         Statement of Financial Accounting Standards No. SFAS 142, "Goodwill and
         Other Intangible Assets," and accordingly is not amortized but subject
         to periodic impairment tests. Acquired customer lists are considered to
         have a finite life, pursuant to SFAS 142, to be amortized over the
         period the asset is expected to contribute to the future cash flows.
         XStream expects the period to be five years. The customer lists will
         also be subject to periodic impairment tests. Acquired trademarks are

                                      F-7
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         considered to have an infinite life but will be subject to impairment
         analysis on an annual basis. In accordance with SFAS No. 142, the
         Company is required to evaluate the carrying value of its intangible
         assets (goodwill, trademarks and customer lists) subsequent to their
         acquisition. Between April 2003 and through December 31, 2004, the
         Company acquired five beverage distribution companies together with a
         natural juice company and certain intellectual property rights related
         to other new age beverage names. The Company's intangible assets,
         including goodwill, trademarks and customers lists, were acquired in
         these acquisitions.

         (G) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
         ------------------------------------------------------

         We account for the impairment of long-lived assets in accordance with
         Financial Accounting Standards, SFAS No. 144, Accounting for the
         Impairment or Disposal of Long-Lived Assets, which requires that
         long-lived assets be reviewed for impairment whenever events or changes
         in circumstances indicate that the book value of the asset may not be
         recoverable. Recoverability of the asset is measured by comparison of
         its carrying amount to the undiscounted cash flow that the asset or
         asset group is expected to generate. If such assets or asset groups are
         considered to be impaired, the loss recognized is the amount by which
         the carrying amount of the property if any exceeds its fair market
         value.

         (H) STOCK-BASED COMPENSATION
         ----------------------------

         The Company accounts for stock options issued to employees in
         accordance with the provisions of Accounting Principles Board ("APB")
         Opinion No. 25, "Accounting for Stock Issued to Employees," and related
         interpretations. As such, compensation cost is measured on the date of
         grant as the excess of the current market price of the underlying stock
         over the exercise price. Such compensation amounts are amortized over
         the respective vesting periods of the option grant. The Company adopted
         the disclosure provisions of SFAS No. 123 "Accounting for Stock-Based
         Compensation," and SFAS No. 148 "Accounting for Stock Based
         Compensation - Transition and Disclosure," which permits entities to
         provide pro forma net income (loss) and pro forma earnings (loss) per
         share disclosures for employee stock option grants as if the
         fair-valued based method defined in SFAS No. 123 had been applied.

         The Company accounts for stock options or warrants issued to
         non-employees for goods or services in accordance with the fair value
         method of SFAS 123. Under this method, the Company records an expense
         equal to the fair value of the options or warrants issued. The fair
         value is computed using an options pricing model. In accordance with
         SFAS 123, for options issued to employees, the Company applies APB
         Opinion No. 25 and related interpretations in accounting for its plan
         and options granted to employees outside of the plan. Had compensation
         cost for options granted under the employment agreements been
         determined on the fair value at the grant dates for awards under that
         plan, consistent with Statement of Accounting Standards No 123. There
         were

          no stock options granted to employees during 2004 and 2005
<TABLE>
<CAPTION>
                                                                      2005          2004
                                                                   -----------    -----------
         <S>                                         <C>           <C>           <C>
         Net loss                                    As reported   $(1,953,694)  $(14,833,050)
         Add: Stock-based employee compensation
         expense included in reported
         net loss, net of related tax effects                      $        --   $         --
         Deduct: Total stock based employee
         compensation expense determined under fair
         value based method for all awards, (5) 1 net
         of related tax effects                                    $        --   $         --
                                                     Pro forma     $(1,953,694)  $(14,833,050)

         Net loss per share - basic and diluted      As reported   $      (.13)  $      (6.71)
                                                     Pro forma     $      (.13)  $      (6.71)
</TABLE>

                                      F-8
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         (J) REVENUE RECOGNITION
         ----------------------

         The Company follows the criteria of the Securities and Exchange
         Commission Staff Accounting Bulletin 104 for revenue recognition. The
         Company recognizes revenue when persuasive evidence of an arrangement
         exists, delivery of product has occurred, the sales price is fixed or
         determinable, and collectibility is reasonably assured. The Company
         recognizes revenue upon acceptance of delivery of its product by its
         customers at agreed prices. Based on market conditions, the Company or
         its suppliers may choose to promote certain brands by offering free
         product or case volume discounts. The cost of any supplier-sponsored
         promotion is recoverable in whole or in part from the supplier. The
         Company follows the guidance of Emerging Issues Task Force (EITF) Issue
         01-9 "Accounting for Consideration Given by a Vendor to a Customer" and
         (EITF) Issue 02-16 "Accounting By a Customer (Including a Reseller) for
         Certain Considerations Received from Vendors." Accordingly, the Company
         does not recognize revenue on free promotional products, discounts or
         rebates received. These incentives are recognized as a reduction of the
         cost of products. Promotional products given to customers are
         recognized as a cost of sales, net of any charge-backs received from
         vendors. Cash incentives provided to customers are recognized as a
         reduction of the related sale price, and, therefore, are a reduction in
         sales. Promotional products given to customers are recognized as a cost
         of sales, net of any charge-backs received from vendors. Cash
         incentives provided to customers are recognized as a reduction of the
         related sale price, and, therefore, are a reduction in sales.

         (K) SHIPPING AND HANDLING COSTS
         -------------------------------

         The Company follows the guidance of EITF 00-10, "Accounting for
         Shipping and Handling Fees and Costs". The Company's shipping costs of
         $1,069,892 and $734,471 for the years ending December 31, 2005 and
         2004, respectively, and are included in costs of goods sold.

         (L) INCOME TAXES
         ----------------

         The Company accounts for income taxes under the Financial Accounting
         Standards Board Statement of Financial Accounting Standards No. 109
         "Accounting for Income Taxes" ("Statement 109"). Under Statement 109,
         deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases. Deferred tax assets and liabilities are measured
         using enacted tax rates expected to apply to taxable income in the
         years in which those temporary differences are expected to be recovered
         or settled. Under Statement 109, the effect on deferred tax assets and
         liabilities of a change in tax rates is recognized as income in the
         period, which includes the enactment date.

         (M) FAIR VALUE OF FINANCIAL INSTRUMENTS
         ---------------------------------------

         Statement of Financial Accounting Standards No. 107, "Disclosures about
         Fair Value of Financial Instruments," requires disclosures of
         information about the fair value of certain financial instruments for
         which it is practicable to estimate that value. For purposes of this
         disclosure, the fair value of a financial instrument is the amount at
         which the instrument could be exchanged in a current transaction
         between willing parties, other than in a forced sale or liquidation.
         The carrying amounts of the Company's short-term financial instruments,
         including accounts receivable, accounts payable, accrued expenses,
         convertible term loans and notes, derivative liability and other
         current asset and liabilities approximate fair value due to the
         relatively short period to maturity for these instruments.

                                      F-9
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         (N) REVERSE STOCK SPLIT
         -----------------------

         On July 19, 2004, the Company affected a one-for-twenty reverse stock
         split. All references in the consolidated financial statements to
         shares, share prices and per share amounts have been adjusted
         retroactively for the one-for-twenty reverse stock split.

         (O) RESTRICTED CASH
         -------------------

         In conjunction with the sale in May 2004 to Laurus Master Fund, Ltd. of
         a $3,000,000 principal amount secured convertible term note, the
         Company has agreed to initially place $2,855,000 of the proceeds of the
         secured convertible term note into a restrictive account controlled by
         Laurus Master Fund, Ltd. The funds held in the restricted account are
         controlled by Laurus Master Fund, Ltd. until the Company consummates
         one or more acquisitions which will be subject to the approval of
         Laurus Master Fund, Ltd. or until all of the outstanding principal
         amount of the secured convertible term note is converted into shares of
         the Company's common stock. Of this amount, approximately $2,558,185
         has been released for working capital purposes and to close
         acquisitions (See Note 17 - Current Portion, Long Term Debt).

         (P) DERIVATIVE INSTRUMENTS
         --------------------------

         The Company accounts for its liquidated damages pursuant to Emerging
         Issue Task Force ("EITF ")05-04, View C, "The Effect of a Liquidated
         Damages Clause on a Freestanding Financial Instrument Subject to EITF
         Issue No. 00-19, "Accounting for Derivative Financial Instruments
         Indexed to, and Potentially Settled in, a Company's Own Stock".
         Pursuant to EITF 05-04, View C, the liquidated damages paid in cash or
         stock are accounted for as a separate derivative, which requires a
         periodical valuation of its fair value and a corresponding recognition
         of liabilities associated with such derivative. The Company accounts
         for its embedded conversion features and freestanding warrants pursuant
         to SFAS No. 133, "Accounting for Derivative Instruments and Hedging
         Activities", which requires a periodic valuation of their fair value
         and a corresponding recognition of liabilities associated with such
         derivatives. The recognition of derivative liabilities related to the
         issuance of shares of common stock is applied first to the proceeds of
         such issuance, at the date of issuance, and the excess of derivative
         liabilities over the proceeds is recognized as other expense in the
         accompanying consolidated financial statements. The recognition of
         derivative liabilities related to the issuance of convertible debt is
         applied first to the proceeds of such issuance as a debt discount, at
         the date of issuance, and the excess of derivative liabilities over the
         proceeds is recognized as other expense in the accompanying
         consolidated financial statements. Any subsequent increase or decrease
         in the fair value of the derivative liabilities is recognized as other
         expense or other income, respectively.

         (Q) GOING CONCERN
         -----------------

         As reflected in the accompanying consolidated financial statements, the
         Company, has a net loss in 2005 of $1,953,694, cash used in operations
         in 2005 of $2,929,367 and an accumulated deficit of $33,845,843 at
         December 31, 2005, stockholders' deficiency of $10,114,322 and a
         working capital deficit of $15,353,740 at December 31, 2005. The
         ability of the Company to continue as a going concern is dependent on
         the Company's ability to further implement its business plan, raise
         capital, and generate revenues. The Company continues to raise capital
         and is continuing its acquisition plan. The Company believes that these
         actions provide the ability to continue as a going concern. The
         consolidated financial statements do not include any adjustments that
         might be necessary if the Company is unable to continue as a going
         concern.

         (R) RECENT ACCOUNTING PRONOUNCEMENTS
         ------------------------------------

         In November 2004, the Financial Accounting Standards Board issued
         Statement No. 151 (SFAS 151), Inventory costs, an amendment of ARB No.
         43, Chapter 4. SFAS 151 clarifies that abnormal amounts of idle
         facility expense, freight, handling costs and wasted materials should
         be recognized as current period charges. In addition, SFAS 151 requires
         that allocation of fixed production overhead to inventory be based on
         the normal capacity of the production facilities. SFAS 151 is effective
         for inventory costs incurred during fiscal years beginning after June
         15, 2005. The Company currently believes that the adoption of SFAS 151
         will not have a material impact on its financial position, results of
         operations and cash flows.

                                      F-10
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
         Payment," which replaces SFAS No. 123 and supersedes APB Opinion No.
         25. Under SFAS No. 123(R), companies are required to measure the
         compensation costs of share-based compensation arrangements based on
         the grant-date fair value and recognize the costs in the financial
         statements over the period during which employees are required to
         provide services. Share-based compensation arrangements include stock
         options, restricted share plans, performance-based awards, share
         appreciation rights and employee share purchase plans. In March 2005
         the SEC issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107
         expresses views of the staff regarding the interaction between FAS No.
         123(R) and certain SEC rules and regulations and provides the staff's
         views regarding the valuation of share-based payment arrangements for
         public companies. SFAS No. 123(R) permits public companies to adopt its
         requirements using one of two methods. On April 14, 2005, the U.S.
         Securities and Exchange Commission adopted a new rule amending the
         compliance dates for SFAS 123R. Companies may elect to apply this
         statement either prospectively, or on a modified version of
         retrospective application under which financial statements for prior
         periods are adjusted on a basis consistent with the pro forma
         disclosures required for those periods under SFAS 123. The Company is
         currently evaluating which transitional provision and fair value
         methodology it will follow. The Company expects that any expense
         associated with the adoption of the provisions of SFAS 123R will have a
         material impact on its results of operations. We are evaluating the
         requirements of SFAS No. 123(R) and SAB 107 to assess what impact its
         adoption will have on our financial position, results of operations and
         cash flows. Effective January 1, 2006, the Company has fully adopted
         the provisions of SFAS No. 123R and related interpretations as provided
         by SAB 107.

         In May 2005, the Financial Accounting Standard Board ("FASB") issued
         Statement No. 154, "Accounting Changes and Error Corrections, a
         replacement of APB Opinion No. 20, Accounting Changes, and Statement
         No. 3, Reporting Accounting Changes in Interim Financial Statements"
         (SFAS 154). SFAS 154 changes the requirements for the accounting for,
         and reporting of, a change in accounting principle. Previously, most
         voluntary changes in accounting principles were required to be
         recognized by way of a cumulative effect adjustment within net income
         during the period of the change. SFAS 154 requires retrospective
         application to prior periods' financial statements, unless it is
         impracticable to determine either the period-specific effects or the
         cumulative effect of the change. SFAS 154 is effective for accounting
         changes made in fiscal years beginning after December 15, 2005;
         however, the Statement does not change the transition provisions of any
         existing accounting pronouncements. We do not believe adoption of SFAS
         154 will have a material effect on our financial position, results of
         operations or cash flows.

         In June 2005, the Emerging Issues Task Force ("EITF") issued EITF 05-2,
         "The Meaning of Conventional Convertible Debt Instrument in Issue No.
         00-19". EITF 05-2 retained the definition of a conventional convertible
         debt instrument as set forth in EITF 00-19, and which is used in
         determining certain exemptions to the accounting treatments prescribed
         under SFAS 133, "Accounting for Derivative Instruments and Hedging
         Activities". EITF 05-2 also clarified that certain contingencies
         related to the exercise of a conversion option would not be outside the
         definition of "conventional" and determined that convertible preferred
         stock with a mandatory redemption date would also qualify for similar
         exemptions if the economic characteristics of the preferred stock are
         more akin to debt than equity. EITF 05-2 is effective for new
         instruments entered into and instruments modified in periods beginning
         after June 29, 2005. We adopted the provisions of EITF 05-2 on July 1,
         2005, which did not have a material effect on our financial statements.

         In July 2005, the FASB issued FASB Staff Position ("FSP") 150-5,
         "Accounting Under SFAS 150 for Freestanding Warrants and Other Similar
         Instruments on Redeemable Shares". FSP 150-5 clarifies that warrants on
         shares that are redeemable or puttable immediately upon exercise and
         warrants on shares that are redeemable or puttable in the future
         qualify as liabilities under SFAS 150, regardless of the redemption
         feature or redemption price. The FSP is effective for the first
         reporting period beginning after June 30, 2005, with resulting changes
         to prior period statements reported as the cumulative effect of an
         accounting change in accordance with the transition provisions of SFAS
         150. We adopted the provisions of FSP 150-5 on July 1, 2005, which did
         not have a material effect on our financial statements.

                                      F-11
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         In July 2005, the FASB issued EITF 05-6, "Determining the Amortization
         period for Leasehold Improvements Purchased After Lease Inception or
         Acquired in a Business Combination", which addressed the amortization
         period for leasehold improvements made on operating leases acquired
         significantly after the beginning of the lease. The EITF is effective
         for leasehold improvements made in periods beginning after June 29,
         2005. We adopted the provisions of EITF 05-6 on July 1, 2005, which did
         not have a material impact to the Company's financial position, results
         of operations and cash flows. Other accounting standards that have been
         issued or proposed by the FASB or other standards-setting bodies that
         do not require adoption until a future date are not expected to have a
         material impact on the consolidated financial statements upon adoption.

         (S) RECLASSIFICATION
         --------------------

         Certain amounts in the 2004 consolidated financial statements have been
         reclassified to conform to the 2005 presentation. Such
         reclassifications had no effect on the reported net loss.

         (T) RESTATEMENT OF 2004
         -----------------------

         There were adjustments to the 2004 statement of operations attributable
         to SFAS 133 and EITF 00-19. The adjustments were as follows:

                  (A)      Consulting Fees: Increased from $1,081,589 to
                           $1,289,783, or $208,194.

                  (B)      Professional Fees: Increased from $402,494 to
                           $429,786, or $27,292.

                  (C)      Interest Expense: Increased from $1,834,813 to
                           $3,397,861, or $1,563,048. $781,421 was attributable
                           to reclassifications of derivatives.

                           $781,627 was due to a reclassification from Loan and
                           Loan Guarantee Fees to conform with the 2005
                           statement presentation.

                  (D)      Dividends: Decreased from $533,922 to $54,909, or
                           $479,013.

                  (E)      Change in FV of derivatives: Increased of $4,260,337
                           in relation to derivative liabilities.

         (U) RISKS AND UNCERTAINTIES:
         ---------------------------

         The Company maintains its cash and cash equivalent accounts in
         financial institutions. Accounts at these institutions are insured by
         the Federal Deposit Insurance Corporation ("FDIC") up to $100,000.
         During 2005, the Company has not reached bank balances exceeding the
         FDIC insurance limit. To reduce its risk associated with the failure of
         such financial institutions, the Company evaluates at least annually
         the rating of the financial institutions in which it holds deposits.

NOTE 2 - NET LOSS PER COMMON SHARE:
-----------------------------------

         Basic net income (loss) per common share (Basic EPS) does not include
         common stock equivalents and is computed by dividing net income (loss)
         available to common stock- holders by the weighted-average number of
         common shares outstanding for the period. Diluted net income per share
         (Diluted EPS) reflects the potential dilution that could occur if stock
         options or other contracts to issue common stock were exercised or
         converted into common stock or resulted in the issuance of common stock
         that then shared in the earnings of XStream. For the twelve months
         ended December 31, 2005 and 2004, the diluted loss per share is the
         same as basic loss per share since the effect of all common stock
         equivalents was antidilutive. The total outstanding warrants which have
         been excluded from the calculation of loss per share, were 9,957,548
         and 4,030,904 at December 31, 2005 and 2004, respectively. In addition
         the Company has Series A Cumulative Convertible Preferred Stock that
         could convert into 200,000 and 200,000 shares of common stock and
         Series B Convertible Preferred Stock that could convert into 3,853,586
         and 1,440,000 shares of common stock at December 31, 2005 and 2004,
         respectively. The Company also has Preferred Series B dividends that
         could convert to 27,640 shares and 36,606 shares of common stock as of
         December 31, 2005 and 2004, respectively. The Preferred Series B
         stockholders also have accrued liquidated damages for the failure to
         file the SB-2 registration statement. These could convert to 119,706
         shares and 55,200 shares of common stock as of December 31, 2005 and
         2004, respectively. The Company has convertible notes that could
         convert into 396,792 and 353,181 shares of common stock as a result of
         the Master Distributors acquisition; 4,594,077 and 3,646,520 shares of
         common stock as a result of the Laurus Secured Note (see Note 17 -
         Current Portion, Long Term Debt) and 4,167,766 shares as a result of
         the term notes (see Note 16 - Convertible Term Loan) at December 31,
         2005 to which there was no comparable figure in 2004. The potential
         dilutive effects of the convertible preferred stock, dividends,
         liquidated damages and convertible notes have been excluded from the
         calculation of net loss per common share.


                                      F-12
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 3 - ACQUISITIONS:
----------------------

         Squeeze Transaction - On January 14, 2004, a wholly owned subsidiary,
         XStream Brands, Inc., a Florida Corporation, entered into an Assignment
         of Trademark with Squeeze Beverage, Inc., for the assignment of all of
         Xstream Brand's rights and interests in the Mark "SQUEEZE" for
         carbonated flavored soft drinks and seltzer water, including all
         variations thereof such as spelling, formatives, phonetic variations
         and stylized designs of the same and all goodwill associated therewith.
         The Company delivered 20,000 shares of its restricted common stock to
         Squeeze Beverages, Inc. in exchange for the assignment of the
         trademark. Based upon the contemporaneous private placement offering
         price of $2.40 per share the Company valued the acquisition at $48,000.

         Maui Juice Transaction - On March 1, 2004, a wholly owned subsidiary,
         XStream Brands, Inc., a Florida Corporation, ("XStream Brands"),
         entered into an Assignment of Trademark with The Maui Juice Company,
         Inc. ("Maui"), for the assignment of all of Maui's rights and interests
         in the Mark "Maui Juice Company", including all variations thereof such
         as spelling, formatives, phonetic variations and stylized designs of
         the same and all goodwill associated therewith. The purchase price for
         the assignment of the trademark was $255,017 in cash with $25,000 paid
         at the acquisition date and $230,017 to be paid under the terms of the
         agreement.

         Pacific Rim Transaction - On March 1, 2004, our wholly owned
         subsidiary, Beverage Network of Hawaii, Inc. a Florida corporation
         ("BNHI"), acquired substantially all of the assets and assumed certain
         liabilities of Pacific Rim Natural Juice Company, Inc., a Hawaii
         corporation ("Pacific Rim"). This acquisition was consummated pursuant
         to an Asset Purchase Agreement (the "Purchase Agreement") dated March
         1, 2004 by and among BNHI (the "Acquirer") and Pacific Rim. Under the
         terms of the Purchase Agreement, the Acquirer purchased substantially
         all of the assets of Pacific Rim and assumed certain Liabilities for
         12,500 shares of XStream's restricted common stock, which, based upon
         the contemporaneous private placement offering price of $2.40 per share
         had a value of $30,000. In addition, prior to the closing, the Company
         advanced Pacific Rim, $15,500 resulting in a total purchase price of
         $45,500.

         Simultaneously with the Asset Purchase agreement, Beverage Network of
         Hawaii, Inc. entered in to a one-year consulting agreement (with the
         option for annual renewals as agreed upon by both parties) with the
         owner of Pacific Rim. The consulting fee (to be paid quarterly) is a
         calculation based on 1% of adjusted gross profit with a minimum
         guaranteed payment of $1,250 per quarter.

         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed at the date of acquisition of Pacific
         Rim. Subject to BNHI's performances, the allocation of purchases price
         is subject to refinement.

                                                        March 1, 2004

                                                        -------------

         Aggregate purchase price                          $ 45,500
                                                           ========
         Current assets                                    $ 10,911
         Fixed assets                                        17,650
         Customer list                                       38,350
         Goodwill                                            44,695
                                                           --------
                            Total assets acquired           111,606

                                                           --------
         Current liabilities assumed                        (66,106)

                                                           --------
                            Net assets acquired            $ 45,500
                                                           ========


         Ayer Beverage Transaction - On March 15, 2004, our wholly owned
         subsidiary, Beverage Network of Massachusetts, Inc., a Florida
         Corporation ("BNMA") acquired substantially all of the assets and
         assumed certain liabilities of Ayer Beverages, Inc., a Massachusetts
         corporation ("Ayer Beverage"). This acquisition was consummated
         pursuant to an Asset Purchase agreement (the "Purchase Agreement")
         dated March 15, 2004, by and among BNMA (the "Acquirer") and Ayer
         Beverage. Under the terms of the purchase Agreement, the Acquirer
         purchased substantially all of the assets of Ayer Beverage and assumed
         certain of its liabilities for $100,000 cash, $100,000 in notes payable
         and 20,000 shares of XStream's restricted common stock which, based
         upon the contemporaneous private placement offering price of $2.40 per
         share had a value of $48,000 resulting in a total purchase price of
         $248,000. The terms of the non-interest bearing note payable are four

                                      F-13
<PAGE>

         quarterly payments of $25,000 each, not earlier than July 15, 2004.
         BNMA has also entered into an employment agreement with existing key
         management of Ayer Beverage. The employment agreement is for a period
         of thirty-six months, commencing March 15, 2004, at a base salary of
         $80,000 per year. The employee is also entitled to receive an issue of
         750 common shares of XStream Beverage Network, Inc. ("XSBG") restricted
         stock upon completion of each of the first and second anniversary of
         the agreement and 1,500 shares upon completion of the third anniversary
         of the agreement. The agreement also stipulates for an employee bonus
         to be calculated on the quarterly gross profit (from 2% - 3%) based
         upon performance as mandated by management's profit targets.

         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed at the date of acquisition of Ayer
         Beverage subject to BNMA's performance, the allocation of purchases
         price is subject to refinement.

                                                      March 15, 2004
                                                      --------------

         Aggregate purchase price                        $248,000
                                                         ========

         Current assets                                  $ 39,041
         Fixed assets                                      44,450
         Customer list                                    147,773
         Goodwill                                         171,620
                                                         --------

                            Total assets acquired         402,884
                                                         --------
         Current liabilities assumed                     (154,884)
                                                         --------
                          Net assets acquired            $248,000
                                                         ========


         Master Distributors Transaction - On July 9, 2004, the Company's wholly
         owned subsidiary, Beverage Network of Maryland, Inc., (a Florida
         Corporation) announced it has completed, effective July 1, 2004, the
         acquisition of substantially all of the assets and certain liabilities
         of Master Distributors Inc. (d/b/a Atlantic Beverage Company.), a
         Mid-Atlantic distributor of non-alcoholic beverages serving Washington,
         D.C., Virginia and Maryland. Atlantic Beverage Company, which operates
         under the corporate entity of Master Distributors, Inc., has a leased
         warehouse in Jessup, Maryland just outside of Baltimore. The
         consideration and terms of the acquisition were 96,154 shares of the
         Company's restricted common stock (valued at $2.40 for accounting
         purposes), $570,000 in cash, $554,648 in cash due within 60 days of the
         closing, a convertible promissory note for $2,000,000 payable in 60
         equal monthly payments and bearing 6% interest per annum and a separate
         $250,000 payment to be made in 12 equal weekly installments commencing
         July 15, 2004 totaling $3,605,417. The holder of the convertible
         promissory note, at his discretion, may elect to receive XStream stock
         in lieu of a cash payment. The minimum conversion is $25,000 at a
         predetermined value of $5.20 per share. In addition, Xstream issued
         21,250 common stock shares to various non-owner employees as an
         incentive to retain them. Beverage Network of Maryland, Inc, has also
         entered into an employment agreement with existing key management of
         Master Distributors, Inc. The initial term of the agreement is for a
         period of six months, commencing July 1, 2004, at a monthly salary of
         $18,750. The final term of the employment agreement, commencing
         December 31, 2004, for a period of eight months, provides for a
         per-diem rate of $1,000 for each day that XStream may request the
         services of the employee.

         The following table summarizes the estimated fair values of the assets
         acquired and liabilities assumed at the date of acquisition of Master
         Distributors, Inc. Subject to BNMD's performance, the allocation of
         purchase price is subject to refinement.

                                                 July 1, 2004

                                                 ------------
         Accounts Receivable                      $  554,648
         Inventory                                   841,519
         Fixed assets                                140,800
         Other assets                                 21,371
         Customer list                             1,973,240
         Goodwill                                  1,737,621
         Current liabilities                        (951,183)
         Loans and notes                            (700,249)
         Other liabilities                           (12,350)
                                                  ----------
             TOTAL PURCHASE PRICE                 $3,605,417
                                                  ==========

                                      F-14
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         The following Pro Forma Combined Financial Statements of Xstream
         Beverage Network, Inc. ("XBNI"), Total Beverage Network, Inc. ("BNSF"),
         Beverage Network of Connecticut, Inc. ("BNCT"), Beverage Network of
         Hawaii, Inc. ("BNHI"), Beverage Network of Massachusetts, Inc. ("BNMA")
         and Beverage Network of Maryland, Inc. ("BNMD") give effect to the
         acquisitions of certain assets of Beverage Network of Hawaii, Inc.
         ("BNHI"), Beverage Network of Massachusetts, Inc. ("BNMA") and Beverage
         Network of Maryland, Inc. ("BNMD") under the purchase method of
         accounting prescribed by Accounting Principles Board Opinion No. 16,
         Business Combinations, as if they had occurred on January 1, 2004.

         These pro forma statements are presented for illustrative purposes
         only. There were no proforma adjustments related to these acquisitions.


                      Twelve Months Ended December 31, 2004
<TABLE>
<CAPTION>
                                                                                                           Proforma
                                  XBNI          BNSF         BNCT         BNHI         BNMA       BNMD     Adjustment     Total
                               -----------   ----------   ----------    ---------    ---------   --------- ----------  -----------
<S>                            <C>           <C>          <C>           <C>        <C>          <C>         <C>       <C>
Sales                          $        --   $  320,794   $2,376,704    $ 223,502  $ 1,637,847  $8,223,130  $    --   $ 12,781,977
Cost of Goods                           --      268,020    1,785,600      130,587    1,455,501   5,772,076       --      9,411,784
                               -----------   ----------   ----------    ---------    ---------   ---------   ------    -----------
Gross Profit                            --       52,774      591,104       92,915      182,346   2,451,054       --      3,370,193
Operating Expenses               5,363,826      308,256    1,408,937      395,639      979,520   2,767,818       --     11,223,996
                               -----------   ----------   ----------    ---------    ---------   ---------   ------    -----------

Operating Income, (Loss)        (5,363,826)    (255,482)    (817,833)    (302,724)    (797,174)   (316,764)      --     (7,853,803)

Other Income, (Expense)         (2,126,569)      35,512      (26,524)      45,462        2,305      (2,797)      --     (2,072,611)
                               -----------   ----------   ----------    ---------    ---------   ---------   ------    -----------

Net Income, (Loss)             $(7,490,395)  $(219,970)   $ (844,357)   $(257,262)   $(794,869)  $(319,561)  $   --    $(9,926,414)
                               ===========   =========    ==========    =========    =========   =========   ======    ===========

Net Income, (Loss) per Share   $     (3.37)  $   (0.10)   $    (0.38)   $   (0.12)   $   (0.36)  $   (0.14)  $   --    $     (4.47)
                               ===========   =========    ==========    =========    =========   =========   ======    ===========
</TABLE>

NOTE 4 - INVENTORY:
------------------

         Inventories are stated at the lower of cost or market determined in a
         "first-in, first-out" basis. The Inventory balance consisted of the
         following:

                                                       December 31, 2005
                                                       -----------------
         Resalable products                               $   704,084
         Proprietary brand raw materials                       33,681
                                                           ----------
         Total:                                            $  737,765
                                                           ==========

NOTE 5 - OTHER RECEIVABLES:
---------------------------

         The Company began conducting business with a distribution partner
         servicing the Pacific Northwest, in an effort to expand its current
         distribution channel during fiscal 2005. As a result, the Company
         purchased raw materials and inventory to initiate the distributor
         partnership; the balance due from the new distributing partner as of
         December 31, 2005 is $68,129.

         The remaining balance of $26,154 is comprised of returned checks from
         current customers and miscellaneous credits with vendors.

                                      F-15
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 6 - OTHER CURRENT ASSETS:
-----------------------------

         The prepaid expense balance consisted of the following:

                                                    December 31, 2005
                                                    ------------------
         Warehouse/Office Supplies                     $    7,070
         Service Contracts                                  8,422
         Rent                                               1,325
         Insurance                                         11,252
         Inventory                                         35,420
         Other                                              1,200
                                                       ----------
         Total:                                        $   64,689
                                                       ==========

NOTE 7 - FIXED ASSETS:
----------------------


         Depreciation expense for the years ended December 31, 2005, and
         December 31, 2004 was $92,477 and $43,537, respectively.

         Property and equipment at December 31, 2005 is as follows:

                                                 December 31, 2005
                                                 -----------------

         Delivery Trucks                               $  110,199
         Warehouse Equipment                               45,537
         Coolers                                           72,777
         Office Equipment                                  99,947
         Furniture & Fixtures                              14,945
         Leasehold Improvements                            36,758
                                                       ----------
                                                          380,163

         Less: Accumulated depreciation                  (144,453)
                                                       ----------
         Net                                          $   235,710
                                                       ==========

NOTE 8 - CAPITALIZED FUNDING COSTS, NET:
---------------------------------------

         The table below summarizes the balance of capitalized funding costs as
         of December 31, 2005:

                                                          December 31, 2005
                                                          ------------------
         Capitalized Funding Costs                            $4,733,323

         Accumulated Amortization:                            (2,056,660)
                                                              ----------
                  Total:                                      $2,676,663
                                                              ==========


                                      F-16
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         In March 2004, the Company entered into a placement agent agreement to
         assist with capital raising activities. The Company closed on first of
         two financing transactions on May 14, 2004 (See Note 17 - Current
         Portion, Long Term Debt) upon which a placement agent fee was paid
         according to the terms of the agreement. The Company issued 426,250
         common stock purchase warrants, at a fair market value of $1,879,809
         (valued using the Black- Scholes model) resulting in capitalized
         funding costs of $1,879,809 to be amortized over the 36 month term of
         the financing agreement (See Note 21 - Stockholders' Deficiency and
         Recapitalization). The Company recorded amortized funding costs of
         $626,603 and $391,627, respectively, for the twelve months ending
         December 31, 2005 and 2004. The remaining balance of unamortized
         funding costs attributable to this transaction is $861,579.

         In connection with the same financing, the Company paid from net
         proceeds $131,000 in legal and closing costs. The Company recognized
         amortized funding costs of $43,667 and $27,292, respectively, for
         twelve months ending December 31, 2005 and 2004. The remaining balance
         of unamortized funding costs attributable to this transaction is
         $60,042.

         The Company closed a second financing transaction on July 30, 2004 (See
         Note 19 - Long Term Notes Payable ). The Company issued 423,529 common
         stock purchase warrants, realizing a fair value of $1,359,712 recorded
         to capitalized funding costs (valued using the Black-Scholes model);
         the value is being amortized over the 42 month term of the financing
         agreement (See Note 21 - Stockholders' Deficiency and
         Recapitalization). The Company recognized amortized funding costs of
         $388,489 and $161,871, respectively, for the twelve months ending
         December 31, 2005 and 2004. The remaining balance of unamort- ized
         funding costs attributable to this transaction is $809,352.

         In June 2005, the Company entered into a series of related agreements
         with Cogent Capital Corp. and 16 institutional accredited investors
         pursuant to which the Company has issued 19,736,848 common shares at a
         purchase price of $0.76 per share in exchange for a total of
         $15,000,000 in U.S. government bonds. To execute the agreement, Cogent
         was to receive $300,000 as an initiation fee along with $28,500 for
         legal fees. These costs are being amortized over the 42 month term of
         the agreement; the Company recognized an expense of $46,891 with a
         remaining balance of $281,609 as of December 31, 2005. (see Note 18 -
         Derivative Liability) The Company also issued 394,729 warrants to an
         investment banker as a placement agent fee. The warrants had a term of
         five years at an exercise price of $0.76 and were considered to have a
         fair value of $240,902 (valued using a Black -Scholes Model); an
         expense of $35,207 with a remaining balance of $205,695 as of December
         31, 2005.

         Pursuant to the terms of the Financial Advisory and Investment Banking
         Agreement executed in April 25, 2005, the Company paid a placement
         agent fee of $301,950, or 10% of the gross units sold in the debt
         financing placement along with legal fees and administrative expenses
         of $106,804. The fees are being amortized over the term of notes which
         have maturity dates ranging from July 6, 2006 through November 8, 2006.
         The Company recognized an expense of $168,969 with a remaining balance
         of $239,785 as of December 31, 2005 (see Note 16 - Convertible Term
         Loan). The agreement also contains a provision whereby the placement
         agent would be granted warrants to purchase shares of restricted common
         in consideration of placement agent fees for the same debt financing
         placement. As of December 31, 2005 the Company has issued 699,253
         warrants with an exercise price of $0.76, a term of five years and a
         fair value of $384,666 (valued using the Black-Scholes model). The
         Company recognized an expense of $166,065, with a remaining balance of
         $218,601.

NOTE 9 - TRADEMARKS:
-------------------

         Trademarks consist of the following:

                                                 December 31, 2005

                                                 -----------------
         Maui Juice                                 $   48,000
         Squeeze Soda                                  255,017
                                                    ----------
            Total:                                  $  303,017
                                                    ==========

         In March 2004 and January 2004, respectively, the Company acquired the
         trademarks Maui Juice Company and Squeeze. Management believes that
         these trademarks have indefinite life cycles based on the market life
         of the products. In accordance with SFAS No. 142, the Company has
         determined that the trademarks acquired for Maui Juice Company and
         Squeeze have indefinite lives, as supported by the Company's ability
         and intent to renew the trademarks as legally required and management's
         belief that these products have indefinite life cycles based on the
         market.

                                      F-17
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 10 - CUSTOMER LIST:
----------------------

         The table below summarizes the balance of customer lists as of December
         31, 2005:

                                                          December 31, 2005
                                                          ------------------
         Beverage Network of Hawaii, Inc. ("BNHI")            $   38,350
         Beverage Network of Maryland, Inc. ("BNMD")           1,973,240
                                                              ----------
                                                               2,011,590

         Accumulated Amortization:                              (606,033)
                                                              ----------
                  Total:                                      $1,405,557
                                                              ==========


         As a result of the acquisitions of the assets of Ayer Beverage, Pacific
         Rim Natural Juice Company and Master Distributors, Inc., the Company
         recorded an identifiable intangible asset classified as customer lists.
         Acquired customer lists are considered to have a finite life pursuant
         to SFAS No. 142 to be amortized over the period the asset is expected
         to contribute to the future cash flows. The customer lists are being
         amortized over a five- year period. The Company evaluates the carrying
         value of intangible assets as of the fiscal year end for all entities.
         The Company engaged the services of an independent firm to conduct a
         valuation of the goodwill for both BNHI, BNMA and BNMD. The reports
         were conducted as of June 30, 2005 for BNHI and BNMA while the
         valuation for BNMD was conducted as of September 30, 2005. The
         independent valuation report for all entities deemed it not necessary
         to adjust the balances of the customer list as of the balance sheet
         dates referenced above. Upon completion of a periodic review of the
         valuation criteria, management determined that the remaining balance of
         the customer list for BNMA should be written-off as it was deemed
         indefinitely impaired. This was due to a working capital deficiency
         preventing this entity from purchasing inventory and generating sales
         during fiscal 2005. Management does not believe that there have been
         any events or circumstances that have resulted in the need for a
         revision to the remaining period of amortization for BNHI or BNMD. The
         impairment loss allocated to customer lists for the year ended December
         31, 2005 is $102,210; amortization expense for the twelve months ending
         December 31, 2005 and December 31, 2004 is $424,485 and $119,144,
         respectively (See Note 3 - Acquisitions).

NOTE 11 - GOODWILL:
-----------------

         Acquired goodwill is considered to have an indefinite life pursuant to
         SFAS 142 and accordingly is not amortized but subject to periodic
         impairment tests. The valuation report for BNMD described in Note 12
         determined that the balance of goodwill from the date of acquisition to
         the valuation date had decreased. The Company recognized impairment
         expense attributable to the goodwill in the amount of $890,000 for the
         twelve months ending December 31, 2005. Management conducted a periodic
         review of the valuation criteria for the balance of acquired goodwill
         for BNHI, BNMA and BNMD. Upon completion, management determined that it
         would record a write down amounting to the remaining balance of the
         acquired goodwill for BNMA, or $171,620, as of December 31, 2005 (See
         Note 3 - Acquisitions).

         The table below summarizes the balance of goodwill as of December 31,
2005:

                                                     December 31, 2005
                                                     ------------------
         Beverage Network of Hawaii, Inc.              $    44,695
         Beverage Network of Maryland, Inc.                847,620
                                                       -----------
                  Total:                               $   892,315
                                                       ===========

         Pursuant to SFAS No. 142, goodwill of a reporting unit is required to
         be tested for impairment on an annual basis and between annual tests in
         certain circumstances. Testing for impairment, beyond an annual basis,
         is required if there is a significant adverse change in the entity
         carrying the goodwill. Management does not believe that there have been
         any events or circumstances that have resulted in the need for a
         revision to the remaining period of amortization for BNHI or BNMD.

                                      F-18
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 12 - OTHER ASSETS:
----------------------

         The balance of other current assets in the amount of $56,483 as of
         December 31, 2005 was comprised of rental security deposits.

NOTE 13 - ACCRUED EXPENSE-SALARIES, ACCRUED EXPENSE-OTHER:
---------------------------------------------------------

         Effective February 5, 2004, the Company executed revised employment
         agreements for its Chairman, President, and Vice President stipulating
         an annual base compensation of $130,000 each. Accrued Compensation
         reflecting officers, new hires, and acquisitions, for the period ending
         December 31, 2005 was as follows:

         Accrued Expense-Salaries: Officers/Directors      $  381,593
         Accrued Expense-Salaries: Other                      221,726
         Accrued Expense-Liquidated Damages                 1,080,977
         Accrued Expense-Cogent                             1,150,470
         Accrued Expense-Laurus Penalty                       166,281
         Accrued Expense-Taxes                                344,815
         Accrued Expense-Other                                  8,906
                                                           -----------
                       Total Accrued Expenses:             $3,354,768
                                                           ==========

         The Company has accrued salaries of $381,593, in aggregate, due to the
         Chairman, President and Vice President. The remaining accrued salaries
         balance of $221,726 consists of $184,818 of current payroll due to
         non-officers/directors and $36,908 due to a former employee.

         The Series B preferred shareholders and the Laurus Master Fund, Ltd.
         have provisions contained within registration rights agreements that
         stipulate each party is entitled to liquidated damages if the SB-2
         registration statement is not effective by a specified date. The Series
         B preferred offering resulted in gross proceeds of $2,160,000 with
         liquidated damages accruing at 2% for month 1 (September 2004) and at
         1.25% for each month thereafter (October 2004 - December 2005) until
         the registration is effective. The Company has the option to remit
         payment of the liquidated damages by issuing more series B preferred
         stock. The Company issued 7.14 shares of preferred series B shares
         which converted to a total payment of $357,223 of accrued liquidated
         damages. The remaining balance of series B preferred liquidated damages
         is $90,977 as of December 31, 2005.

         The Laurus Master Fund, Ltd. transaction resulted in gross proceeds of
         $3,000,000 with liquidated damages accruing at 2% per month for not
         having the SB-2 effective (commencing August 14, 2004). The balance of
         accrued liquidated damages is $990,000 as of December 31, 2005.

         In June 2005, The Company has entered into a series of related
         agreements with Cogent Capital Corp. and 16 institutional accredited
         investors pursuant to which the Company has issued 19,736,848 common
         shares at a purchase price of $0.76 per share in exchange for a total
         of $15,000,000 in U.S. government bonds. Under the terms of the equity
         swap, the 15,789,472 common shares and the bonds are maintained in
         escrow until the earlier of 42 months or such time as all of these
         shares are covered by an effective registration statement filed with
         the SEC. During the period of the escrow, Cogent Capital Corp. will
         also receive from the swap agreement, interest on the amount of
         $15,000,000 at a rate equal to LIBOR +125 basis points, payable
         monthly. The balance of accrued expenses and interest due to Cogent as
         of December 31, 2005 is $1,150,470. (See Note 22 - Subscription
         Receivable)

         Under the terms of the Secured Convertible Term Note issued by us to
         Laurus Master Fund, Ltd. in May 2004, this judgment constituted an
         event of default. As security for this note we have granted a security
         interest to Laurus Master Fund, Ltd. in all of our assets, the
         obligations under the secured convertible term note have been
         guaranteed by our subsidiaries, and we have pledged the stock of all of
         our current and any future subsidiaries acquired by us during the term
         of the secured convertible term note. As a result of this default,
         Laurus Master Fund, Ltd. is entitled to 2% default premium in addition
         to the stated interest rate currently accrued on the remaining balance
         of the note per month. The accrued interest attributable to the default
         premium is $166,281 as of December 31, 2005.

         The Company is legally pursuing a former payroll processor, Florida
         Employer Solutions, Inc. (FES), for restitution in the form of
         reimbursement of payroll taxes monies that the payroll processor failed
         to pay on behalf of the Company. The balance due is $344,815 as of
         December 31, 2005.



                                      F-19
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 14 - DIVIDENDS PAYABLE:
---------------------------

         The Series B Preferred pays cumulative semi-annual dividends of 6% per
         annum, payable at the Company's option in cash, registered shares of
         its common stock or additional shares of its Series B Preferred (See
         note 21 - Stockholder' Equity and Recapitalization).

         The Company issued 3.43 shares of preferred series B shares which
         converted to the payment of $171,622 of accrued dividends. The
         dividends payable as of December 31, 2005 and 2004, were $21,006 and
         $54,909, respectively.

NOTE 15 - LOANS PAYABLE AND LOANS PAYABLE, RELATED PARTY:
--------------------------------------------------------

         In January 2004, an agreement was made to convert a $15,000 third
         party, non-interest bearing demand note to equity with the common
         shares valued at the contemporaneous private placement offering price
         of $2.40 per share. The transaction resulted in the Company recognizing
         a gain on conversion of $3,000.

         XStream Beverage, Inc. ("XBI"), a principal stockholder of the Company
         owned by XStream's Chairman, periodically loans money to XStream. In
         March 2004, the principal shareholder advanced $25,000 to the Company;
         XStream's loans from XBI are non-interest bearing demand note with no
         specified term. The balance due was $50,355 at December 31, 2005.

         In October 2004, a shareholder advanced $137,000 to the Company as an
         interest bearing demand note at 6% per annum with no specified term.
         The Company repaid the entire balance of the loan as of the twelve
         months ended December 31, 2005.

         Loans payable at December 31, 2005 were as follows:

         Loans Payable:

         Bank Line of Credit 6% per annum(1)                     $    8,014
         Automotive equipment loan (1)                                  923
         March 2004, interest bearing demand note 8%
          per annum, due June 2004 (loan in arrears) (1)              2,930
         March 2004, non-interest bearing, due April 2005            72,934
          due April, 2005 (loan in arrears) (1)
         July 2004, interest bearing demand note 6%
          per annum, (2) (loan in default)                          156,092
         December 2005, 60 day demand note, due February 2006       100,000
                                                                  ----------
           Total Loans Payable - Other                              340,893

           Loans Payable, Related Party                              50,355
                                                                 ----------
           Total Loans Payable                                   $  391,248
                                                                 ==========

            (1) Resulted from the acquisition of Beverage Network of
                Massachusetts, Inc.("BNMA") (See Note 3 - Acquisitions)

            (2) Resulted from the acquisition of Beverage Network of Maryland,
                Inc. ("BNMD") (See Note 3 - Acquisitions)

         On September 29, 2005 we received a notice of default under the terms
         of an unsecured promissory note issued in connection with our purchase
         of Master Distributors, Inc. The note holder is demanding payment of
         $156,092 which includes outstanding principal and interest due. We do
         not know at this time what action, if any, the note holder may take.

NOTE 16 - CONVERTIBLE TERM LOAN:
--------------------------------

         The balance of the convertible term notes, accrued interest and related
         debt discount at December 31, 2005 is as follows:

                   Term note 18% per annum                       $  625,000
                   Term note 12% per annum                        3,019,500
                   Accrued interest                                 247,896
                   Less: debt discount                           (1,700,604)
                                                                 ----------
                                                                 $2,191,792
                                                                 ==========

                                      F-20
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         The Company secured $725,000 from investors resulting from a debt
         placement offering originating in February 2005. The debt instruments
         are convertible term notes at 18% per annum, with maturity dates
         ranging from September 1 to November 15, 2005. The net proceeds
         received by the Company was $725,000 to be used as general working
         capital. As a pledge for collateral, the Company issued 100,000 shares
         of restricted common stock to be held in escrow (See Note 21 - (B)
         Stockholders' Deficiency and Recapitalization). Should the Company
         default, the exercise price of the warrants automatically reduce by 5%
         for each 30 day period in which the Company remains in default. As of
         December 31, 2005, the Company reflected a balance of principal and
         interest due of $724,894.

         Attached to the notes was a provision whereby the purchasers were
         issued common stock warrants, with a five year term and exercisable at
         $1.50, in an amount equivalent to the face value of each note. The
         notes also contain, at the discretion of the holder, a conversion
         option contingent upon a future secondary offering. The 725,000
         warrants issued to the debt holders were valued at $635,511 and
         recorded to derivative liability (See Note 21 (C) - Stockholders'
         Deficiency and Recapitalization).

         In September 2005, we received a notice of default under the terms of
         two secured promissory notes issued by us to investors in the aggregate
         principal amount of $200,000. These notes were due and payable by us on
         September 1, 2005. As collateral for these notes we pledged 100,000
         shares of our common stock and Theodore Farnsworth, our CEO, pledged
         100,000 shares of our common stock owned by him. The Company has repaid
         $100,000 of the principal balance, however, the note holders are
         demanding payment of $233,279. As we have been unable to pay these
         amounts, the note holders are entitled to foreclose on the collateral
         at any time.

         As of July 5, 2005, the Company has completed the sale of $3,019,500
         units of its securities to 44 institutional and/or accredited
         investors. The units consisted of $100,000 principal amount of
         convertible notes, warrants to purchase 100,000 shares of common stock
         at an exercise price of $0.76 per share with a term of five years and
         10,000 shares of common stock. The maturity date of the notes range
         from July 6 through November 8, 2006 and bear interest at the rate of
         12% per annum payable at the maturity date or upon conversion of the
         notes if prior to the maturity date. The holders of the notes have the
         option to convert the notes into common shares of the Company at a
         price equal to the public offering price of common shares of the
         Company in any underwritten registered public offering involving common
         stock of the Company less a discount of 20%. If the Company does not
         complete a public offering prior to maturity, the holders may, at their
         option, convert their notes at maturity into common shares at a price
         of $0.76 per share, subject to adjustment in the event of any dilution
         events. This transaction resulted in net proceeds of $2,610,766 to be
         used for general working capital, after payment of offering costs and
         fees of $408,734. As of December 31, 2005, the Company reflected a
         balance of principal and interest due of $3,167,502. The Company
         allocated $2,885,290 to debt discount; it recognized interest expense
         from debt discount amortization of $1,184,686 with a remaining balance
         of $1,700,604 to be amortized through fiscal 2006. (See Note 18 -
         Derivative Liability)

         The 301,950 shares of common stock, issued to the debt holders, were
         valued at $236,471 and are being amortized over the term of the notes.
         The Company recognized an expense of $101,609 with a remaining deferred
         component of $134,862 as of December 30, 2005 (See Note 21 (B) -
         Stockholders' Deficiency and Recapitalization).

         Notice of Default:

         The event of default under the Secured Convertible Term Note (see Note
         17 - Current Portion, Long Term Debt) has triggered an event of default
         under unsecured promissory

         notes in the aggregate principal amount of $3,019,500 which we issued
         to an aggregate of 44 purchasers in a private placement of our
         securities between June and November, 2005. At the option of the
         holders of greater than 50% of the face amount of these outstanding
         notes, the notes will become immediately due and payable. We do not
         know at this time what action, if any, the note holders may take.

NOTE 17 - CURRENT PORTION, LONG TERM DEBT:
-----------------------------------------

         The current portion of long term debt and debt discount as of December
         31, 2005 is as follows:

         Interest bearing demand note 6% per annum, due
         April 2012 (Maui Trademark)*                         $    29,129
         Secured 6% convertible note ("BNMD")                   2,063,317
         Senior secured convertible note ("Laurus")             2,834,865
         Debt discount on senior secured convertible note      (1,375,000)
                                                              ------------
          * (see Note 19 - Long Term Notes payable)              3,552,311
                                                              ============

                                      F-21
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         On May 14, 2004, the Company secured a financing arrangement with
         Laurus Master Funds, Ltd. ("Laurus Funds"). The financing consists of a
         $3 million Senior Secured Convertible Note that bears interest at the
         rate per annum of prime plus two percent (7.25% at December 31, 2005)
         and has a term of three years (May 14, 2007). The Note is convertible
         into shares of the Company's common stock, only upon effectiveness of a
         registration statement registering the underlying shares, at a fixed
         price of $4.60 per share for the first $50,000 with the remaining
         $2,950,000 convertible at a fixed price of $5.20 per share, a premium
         to the 22-day average closing share price as of May 14, 2004. The first
         conversion price was reduced to $1.50 per share as a result of the
         Series B financing transaction; the second conversion price was reduced
         to $0.76 per share as a result of the Maxim Group debt placement
         financing that occurred on June 30, 2005.

         In connection with the financing, Laurus Funds was also issued a
         Warrant (the "Warrant") to purchase up to 225,000 shares of the
         Company's common stock. The warrants are exercisable as follows: 75,000
         shares at $6.40 per share; 75,000 shares at $7.80 per share and the
         balance at $9.00 per share.

         The Company recorded a debt discount of $3,000,000 to be amortized over
         the term of the note. The Company recognized amortization of debt
         discount to interest expense of $1,000,000 and $625,000, respectively,
         for the twelve months ending December 31, 2005 and 2004.

         To secure the payment of all obligations, Xstream Beverage Network, Inc
         "XBNI" and its subsidiaries entered into a Master Security Agreement
         which assigns and grants to Laurus Funds a continuing security interest
         in all of the following property now owned or at any time upon
         execution of the agreement, acquired by XBNI or its subsidiaries, or in
         which any Assignor now has or at any time in the future may acquire any
         right, title or interest (the "Collateral"): all cash, cash
         equivalents, accounts, deposit accounts, inventory, equipment, goods,
         documents, instruments (including, without limitation, promissory
         notes), contract rights, general tangibles, chattel paper, supporting
         obligations, investment property, letter-of-credit rights, trademarks,
         trademark applications, patents, patent applications, copyrights,
         copyright applications, tradestyles and any other intellectual
         property, in each case, in which any Assignor now has or may acquire
         any right, title or interest, all proceeds and products thereof,
         (including, without limitation, proceeds of insurance), and all
         additions, accessions and substitutions. In the event any Assignor
         wishes to finance an acquisition in the ordinary course of business of
         any hereafter-acquired equipment and has obtained a commitment from a
         financing source to finance such equipment from an unrelated third
         party, Laurus Funds agrees to release its security interest on such
         hereafter-acquired equipment so financed by such third party financing
         source.

         The Secured Term Note Agreement stipulates the note to be repaid using
         cash payments along with an equity conversion option; the details of
         both methods for repayment are as follows: The cash repayments
         stipulate that beginning September 1, 2004, or the first Amortization
         Date, the Company shall make monthly payments to Laurus Funds on each
         Repayment Date until the Maturity Date, each in the amount of $1,470.59
         (the "Tranche A Monthly Principal Amount"), together with any accrued
         and unpaid interest to date on such portion of the first Fifty Thousand
         Dollars ($50,000) aggregate principal amount of the Note ("Tranche A")
         and each in the amount of $16,176.47 (the "Tranche B Monthly Principal
         Amount"), together with any accrued and unpaid interest to date on such
         portion of the next Two Million Nine Hundred Fifty Thousand Dollars
         ($2,950,000) aggregate principal amount of the Note ("Tranche B"). The
         conversion repayment states that each month by the fifth (5th) business
         day prior to each Amortization Date, the Laurus Funds shall deliver to
         the Company a written notice converting the Monthly Amount payable on
         the next Repayment Date in either cash or Common Stock, or a
         combination of both. If a Repayment Notice is not delivered by Laurus
         Funds on or before the applicable Notice Date for such Repayment Date,
         then the Company pays the Monthly Amount due in cash. Any portion of
         the Monthly Amount paid in cash shall be paid to Laurus Funds in an
         amount equal to 102% of the principal portion of the Monthly Amount
         due. If Laurus Funds converts all or a portion of the Monthly Amount in
         shares of Common Stock, the number of such shares to be issued by the
         Company will be the number determined by dividing the portion of the
         Monthly Amount to be paid in shares of Common Stock, by the applicable
         Fixed Conversion Price. The issuance of the 12% convertible term loans
         originating on June 30, 2005 triggered an adjustment in the conversion
         price from $1.50 to $0.76. The balance of the Secured Term Note, less
         debt discount, was $1,459,865 as of December 31, 2005.

         The allocation of proceeds was as follows: $102,292 to payoff a term
         loan and line of credit at a commercial lending institution; $50,000
         paid to Master Distributors, Inc., as a deposit; $266,708 to the
         Company as operating capital and $131,000 was distributed for
         management, due diligence/documentation and escrow agent fees. These
         fees are being amortized over the 36 month term of the note (See Note 8
         - Capitalized Funding Costs). The Company recognized amortized funding
         cost expenses of $43,667 and $27,292, respectively for the twelve
         months ending December 31, 2005 and 2004. The balance of $2,450,000 was
         deposited by Laurus Funds on behalf of the Company into an account,



                                      F-22
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         which is in the sole dominion and control of Laurus Funds. The purpose
         of the account is to ensure funds are readily accessible for the cash-
         financing portion of acquisitions or for any other purpose that Laurus
         Funds deemed appropriate for use of such funds. In February, 2005
         Laurus released substantially all of the remaining balance of the
         restricted cash (See Note 1 (O) - Restricted Cash).

         A registration rights agreement was executed to register the shares
         underlying the note and warrants. Certain liquidated damages of 2% of
         the note balance, per month, accrue if stipulated deadlines are not
         met. The SB-2 registration was originally submitted on September 30,
         2004, and resubmitted on October 14, 2005. The registration statement
         has not been declared effective as of December 31, 2005. The Company
         recorded liquidated damages attributable to the registration statement
         in the amount of $990,000 (See Note 13 - Accrued Expenses Salaries,
         Accrued Expense Other).

         Notice of Default:

         Our subsidiary, Beverage Network of Massachusetts, Inc. was named as a
         party in a legal proceeding filed by Kraft Foods, Inc. Under the terms
         of the Secured Convertible Term Note issued by us to Laurus Master
         Fund, Ltd. in May 2004, this judgment constituted an event of default.
         As security for this note we have granted a security interest to Laurus
         Master Fund, Ltd. in all of our assets, the obligations under the
         secured convertible term note have been guaranteed by our subsidiaries,
         and we have pledged the stock of all of our current and any future
         subsidiaries acquired by us during the term of the secured convertible
         term note. As a result of this default, Laurus Master Fund, Ltd. is
         entitled to immediately accelerate the due date of the note, and we
         would owe Laurus Master Fund, Ltd. 125% of the outstanding principal
         amount of the note plus accrued and unpaid interest and fees. On April
         7, 2006, the Company completed a Securities Purchase Agreement with
         Laurus Master Fund, Ltd., to refinance the existing obligations and to
         provide the Company with additional financing. The aggregate principal
         amount of the notes is $10,000,000 (See Note 24 - Subsequent Events).

         On July 9, 2004, the Company's wholly owned subsidiary, Beverage
         Network of Maryland, Inc. ("BNMD"), (a Florida Corporation) announced
         it has completed the acquisition of substantially all of the assets and
         certain liabilities of Master Distributors, Inc. Pursuant to the terms
         of the agreement, the Company issued a convertible promissory note for
         $2,000,000 payable in 60 equal monthly payments and bearing 6% interest
         per annum. The Company executed an amended agreement to defer all
         payment of the note until June 15, 2005. The holder, at his discretion,
         may elect to receive XStream stock in lieu of a cash payment. The
         minimum conversion is $25,000 at a predetermined value of $5.20 per
         share. In January 2005, the Company issued 150,000 shares of restricted
         common stock to the principal owner of Master Distributors, Inc. as
         consideration for deferring all debt payments until June 15, 2005. In
         September 2005, the Company received a notice of default from the
         principal owner of Master Distributors. We do not know at this time
         what action, if any, Master Distributors, Inc. may take. The balance
         due as of December 31, 2005 is $2,063,317.

NOTE 18 - DERIVATIVE LIABILITY:
-------------------------------

         During May 2004, the Company issued a $3,000,000 convertible note. The
         terms of the convertible note included, among other things, a
         prepayment redemption premium equal to 125% of the face value of the
         convertible note, a subsequent financing conversion reset right, a
         default interest rate amounting to 24%, which is more than twice as
         much as the stated rate, and certain registration rights providing for
         liquidated damages, payable in cash, amounting to 2% of the unpaid
         principal of the convertible note. These provisions are considered
         embedded conversion features or derivatives pursuant to SFAS 133 or
         View C of EITF Issue No. 05-04. Additionally, because there is no
         explicit number of shares that are to be delivered upon satisfaction of
         the embedded features and the liquidated damages, the Company is unable
         to assert that it had sufficient authorized and unissued shares to
         settle such features or liquidated damages. Accordingly, all of the
         Company's previously issued and outstanding instruments, such as
         warrants issued to non-employees which performance has occurred as well
         as those issued in the future, would be classified as liabilities,
         effective with the granting of the embedded conversion features and the
         liquidated damages. The Company recognized liabilities for the
         following derivatives at the date of their issuance during 2004 and
         2005, respectively:

                                      At issuance-2004      At issuance-2005
                                      ----------------      ----------------
Embedded conversion
features and liquidated damages
and freestanding warrants issued
to investors-
$3,000,000 convertible note                 $ 8,669,296             $     --
Series B preferred shares                    18,640,159                   --
Term loans                                           --            4,429,280
Freestanding warrants issued to
placement agents
$3,000,000 convertible note                   1,879,809                   --
Series B preferred shares                     1,359,712                   --
Term loans                                           --              645,390
Other warrants                                  649,013            1,031,922
                                            -----------           ----------
                                            $31,197,989           $6,106,592

                                      F-23
<PAGE>


                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         The fair value of the derivative liabilities at December 31, 2004 and
         2005 are as follows:

         Embedded conversion
         features and liquidated damages
         and freestanding warrants issued
         to investors-
         $3,000,000 convertible note       $ 5,151,349   $   919,843
         Series B preferred shares           7,955,773     2,100,433
         Term loans                                 --     2,022,818
         Freestanding warrants issued to
         placement agents
         $3,000,000 convertible note           578,499        70,244
         Series B preferred shares             542,105        71,787
         Term loans                                 --       129,427
         Other warrants                        225,395       300,992
                                           -----------   -----------
                                           $14,453,121   $ 5,615,544




         The Company used the following assumptions to measure the identified
         derivatives as follows:

         Embedded conversion feature and liquidated damages

                               At their date of issuance   At December 31, 2005
                               -------------------------   --------------------
Market price:                           $0.43-4.80               $     0.22
Conversion price:                       $1.50-5.20               $0.76-1.50
Term:                                   3-5 years            2.5-4.27 years
Volatility:                                83-149%                      157%
Risk-free interest rate:                2.64-3.65%                     4.40%
Maximum liability:
$3,000,000 convertible note            $9,000,000               $ 6,290,313
Series B preferred shares               5,817,159                 5,817,159
Term loans                              7,573,218                 3,544,738


Freestanding warrants

                                    At issuance            At December 31, 2005
                                    -----------            --------------------
Market price:                         $0.43-4.80                $      0.22
Exercise price:                       $ 0.20-100                $  0.20-100
Term:                                  3-5 years                3-4.5 years
Volatility:                               83-161%                       157%
Risk-free interest rate:               2.64-4.42%                      4.40%
Outstanding other
options and warrants                  10,220,857                  9,957,548



         The embedded conversion features are as follows:

         Reset Feature Following Subsequent Financing-: 50% for all debt
         financing, which is the effective discount to market value the Company
         would offer in the event we provide for a subsequent private placement
         financing.

         Liquidated Damage Clause: 46% and 48.75% for the convertible note and
         the preferred Series B shares, respectively, which is the difference,
         in months between the time the underlying shares are free- trading and
         the grace period to obtain a registration statement, multiplied by the
         liquidated damage rate of ranging between 1.25% to 2% per month.

         Prepayment Penalty: 25% for the convertible note, which is the stated
         penalty rate in the event of prepayment.

         Default Premium: 25% and 23% for the convertible notes and the
         Preferred Series B shares, respectively, which is the stated premium in
         event of default.



                                      F-24
<PAGE>


                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         Incremental Default Interest Rate: 54% for the convertible notes, which
         is the difference between the default rate and the stated rate,
         multiplied by the term of the loan.

         During 2004 and 2005, the Company allocated $5,160,000 and $3,606,146,
         respectively, of the fair value of the derivatives issued in connection
         with the debt, at their date of issuance, to debt discount. The excess
         of the fair value of the derivative liabilities over the debt discount
         has been recognized as other expense, which amounts to $22,149,455 and
         $823,134 during 2004 and 2005, respectively.

         During 2004 and 2005, the Company allocated $4,407,683 and $645,390,
         respectively, of the fair value of the derivatives issued in connection
         with the compensation of debt placement agents to deferred financing
         fees and to Laurus Master Fund for the release of restricted cash.

         During 2004 and 2005, the Company allocated $625,201 and $1,031,922,
         respectively, of the fair value of the derivatives issued in connection
         with services performed by consultants to consulting expenses.

         The aggregate fair value of all derivative liabilities upon issuance of
         the various debt and equity instruments amounted to $31,979,989 and
         $6,106,592 during 2005 and 2004, respectively. The decrease in fair
         value of the derivative liabilities between the date of their issuance
         and the balance sheet date, if issued during 2005, and between January
         1, 2005 and December 31, 2005, if issued during 2004, amounted to
         $16,744,868 and $14,944,169 million during 2004 and 2005, respectively.
         The decrease in fair value of the derivative liabilities has been
         recognized as other income.

NOTE 19 - LONG TERM NOTES PAYABLE:
---------------------------------

         The following table reflects long-term notes as of December 31, 2005:

         Interest bearing demand note 6% per annum, due

         April 2012 (Maui Trademark)                              $    171,171
         43.2 shares of its Series B Convertible Preferred Stock     2,160,000
         Less: Debt discount                                        (1,081,715)

         Less: Current portion of 6% interest bearing demand note      (29,129)
                                                                  -------------
                                                                  $  1,220,327
                                                                  =============

         On March 1, 2004, our wholly owned subsidiary, XStream Brands, Inc., a
         Florida Corporation, ("XStream Brands"), entered into an Assignment of
         Trademark with The Maui Juice Company. The purchase price for the
         assignment of the Trademark was $255,017 in cash with $25,000 paid at
         the acquisition date and $230,017 to be paid under the terms of the
         agreement, (See Note 3 - Acquisitions). The balance due as of December
         31, 2005 was $171,171. The Company is in arrears on repayments
         according to the terms of the note, however, it is not in default.

         On August 2, 2004 Xstream Beverage Group, Inc. sold 43.2 shares of its
         Series B Convertible Preferred Stock to nine accredited investors and
         issued the purchasers Series A Common Stock Purchase Warrants and
         Series B Common Stock Purchase Warrants in a private transaction exempt
         from registration under the Securities Act of 1933 in reliance on
         Section 4(2) of that act and Rule 506 of Regulation D. Pursuant to the
         terms of the placement documents the debt instrument is convertible or
         redeemable at the discretion of the holder at the end of the 42 month
         term. The balance of the $2,160,000 gross proceeds, less debt discount
         of $1,081,715, is reflected as of December 31, 2005 (See Note 21 (A) -
         Stockholder's Deficiency and Recapitalization).



                                      F-25
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 20 - COMMITMENTS AND CONTINGENCIES:
---------------------------------------

         (A) FACILITY LEASES
         -------------------

         FACILITY LEASES

         Effective December 1, 2003, XStream terminated its month-to-month lease
         at its corporate headquarters in Boca Raton and co-located with its
         subsidiary, BNSF. BNSF renewed the lease for twelve months in November
         2004. The current facility is 7,200 sq. ft. at a monthly rate of
         $4,776. On October 24, 2005, the facility was rendered inhabitable due
         to damage sustained during Hurricane Wilma. The current lease expired
         on November 30, 2005 and the Company opted not to renew the lease for
         the current space and rented an executive suite while trying to secure
         a more permanent space. The month-to-month rental was approximately
         $1,350 per month. In February 2006, Xstream executed a 5 year sublease
         beginning in March 2005. The space is approx- imately 4,900 square feet
         at a rate of $12.50 per sq. ft. (See Note 24 - Subsequent Events)

         BNSF moved its inventory to a warehouse facility on a month-to-month
         basis with no lease agreement at a cost of approximately $500 per
         month; in addition the BNSF incurs charges for loading and handling for
         the inventory. Rent expense for the period ending December 31, 2005 for
         corporate headquarters and BNSF was $74,161 while rent expense was
         $44,949 for the same period in 2004.

         BNCT leases a 13,622 square foot facility in Bristol, CT. The rent is
         $5,676 per month and the lease expires in October 2008. Rent expense
         for the period ending December 31, 2005 was $68,110, compared to
         $64,934 as of December 31, 2004.

         BNHI assumed the current lease as part of acquiring the assets of
         Pacific Rim. The terms were month-to- month with rent of $1,038 per
         month. In March of 2004, BNHI entered into a month-to-month lease
         agreement for management facilities with monthly rent of $2,000. The
         space was being utilized as housing for marketing consultants and other
         individuals active in expanding the brand and current distribution
         territory. Subsequently, in April 2005, Xstream entered into a three
         year lease agreement for the benefit of BNHI. The lease provides for
         2,750 square feet of retail, office, and warehouse space at a cost of
         $2,750 per month plus real estate taxes and escalation. Rent expense
         charged to operations for the period ending December 31, 2005 was
         $55,468 as compared to $41,240 for the same period in 2004.

         BNMA assumed the lease from Ayer Beverage, Inc., consisting of a 4,300
         square foot facility at a cost of $1,425 monthly. On June 1, 2004, BNMA
         entered into a second lease agreement for 13,500 sq. ft. of space
         located in Lawrence, MA. The terms are month-to-month at a cost of
         $5,000 per month; the lease was terminated in November, 2004. BNMA
         renewed the assumed lease from Ayer Beverage, Inc. in June 2005 at a
         monthly rate of $1,688. Rent expense charged to operations for the
         period ending December 31, 2005 was $20,650, compared to $48,345 for
         the same period in 2004.

         BNMD assumed the lease from Master Distributors, Inc., consisting of a
         70,261 square foot facility at a current cost of $24,775 monthly. The
         current lease expires on March 31, 2008, and the Company is provided
         with an annual credit each March, equivalent to one months' rent. BNMD
         also subleases to four tenants 12,250 sq. ft. of warehouse space along
         with parking spaces adjacent to the building. The total space subleased
         yielded $14,950 per month (Jan - Jul, 2005) and $12,550 per month (Aug
         - Dec, 2005), respectively. The sublease rent is offset against rent
         expense. The total rent charged to operations for the period ending
         December 31, 2005 was $103,281, compared to $57,910 for the six month
         period July 1 - December 31, 2004 (post-acquisition).

         Minimum lease payments over the next five years are as follows:

                       Future Minimum     Sublease     Net Minimum
                       Lease Payments     Income       Lease Payments

                       --------------     --------     --------------

         2006             $  422,959      $(122,200)   $  300,759
         2007                449,006        (24,000)      425,006
         2008                189,262         (6,000)      183,262
         2009                 67,568             --        67,568
         2010                 71,280             --        71,280
                          ----------      ---------    ----------
                          $1,200,075      $(152,200)   $1,047,875
                          ==========      =========    ==========

(B) EMPLOYMENT AGREEMENTS
-------------------------

         See Note 13 for details regarding accrued compensation.

                                      F-26
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


NOTE 21 - STOCKHOLDERS' DEFICIENCY AND RECAPITALIZATION:
---------------------------------------------------

         (A) PREFERRED STOCK
         -------------------

         The Company has authorized 10,000,000 shares of preferred stock at
         $0.001 par value. The Board of Directors is authorized to issue two
         series of preferred stock and to fix the designation, powers,
         preferences, and rights of the shares of each series. In addition, the
         Company may pay dividends of common stock to preferred stockholders. In
         October 2001, the Board of Directors authorized Series A preferred
         stock, which is cumulative voting and convertible and does not have
         dividend rights. Each share of preferred stock is convertible to one
         share of common stock and each share of preferred stock is entitled to
         5 votes on each matter submitted to a vote of the total capital stock
         of the Company. There were 200,000 preferred Series A shares
         outstanding at December 31, 2005.

         On August 2, 2004 XStream sold 43.2 shares of Series B Convertible
         Preferred Stock to nine accredited investors and issued the purchasers
         Series A Common Stock Purchase Warrants and Series B Common Stock
         Purchase Warrants in a private transaction exempt from registration
         under the Securities Act of 1933 in reliance on Section 4(2) of that
         act and Rule 506 of Regulation D. XStream received gross proceeds of
         $2,160,000. The designations, rights, and preferences of the Series B
         Preferred provide that the Series B shares (i) have a liquidation
         preference of $50,000 per share; (ii) are convertible into shares of
         XStream common stock equal to the liquidation preference divided by the
         conversion price of $1.50 per share. The conversion price is subject to
         adjustment in the event of stock splits and combinations, dividends or
         distributions, reclassifications or reorganizations, or in the event,
         Xstream issues or sells any additional shares of common stock or other
         securities, which are convertible into common stock or common stock
         equivalents at a price less than the then current conversion price. The
         issuance of the 12% convertible term loans originating on June 30, 2005
         triggered an adjustment in the conversion price from $1.50 to $0.76.
         Holders are restricted in their ability to convert the Series B
         Preferred into common stock if at the time of conversion the number of
         shares of common stock to be issued, together with all other shares of
         common stock owned by the holder, would result in the holder owning in
         excess of either 4.9% or 9.9% of the then issued and outstanding shares
         of Company's common stock, subject to a waiver by the holder of these
         limitations upon 61 days notice to the Company. Gross proceeds of
         $2,160,000 from the issuance of 43.2 shares of Series B Preferred, five
         year Series A detachable common stock purchase warrants to purchase
         1,440,000 shares of the Company's common stock with an exercise price
         of $2.00 per share and five year Series B detachable common stock
         warrants to purchase 720,000 shares of the Company's common stock with
         an exercise price of $4.00 per share. The Series B Preferred, which has
         a liquidation preference of $50,000 per share, is convertible into
         shares of the Company's common stock equal to the liquidation
         preference divided by the conversion price of $1.50 per share. The
         issuance of the 12% convertible term loans originating on June 30, 2005
         triggered an adjustment in the conversion price from $1.50 to $0.76.
         The Company recognized debt discount of $2,160,000 along with a
         mandatory redemption premium of $504,000, to be amortized over the 42
         month term of the agreement. The Company recognized interest expense
         from debt discount amortization of $761,143 and $ 317,143,
         respectively, as of the twelve months ended December 31, 2005 and 2004.
         The remaining balance of debt discount is $ 1,081,715 as of December
         31, 2005.

         The holders have the right to require Xstream to redeem all, or a
         portion of the shares of the Series B Preferred under certain
         circumstances, including (i) upon the occurrence of a Major Transaction
         (as that term is defined in the designations of the Series B
         Preferred). In this event, the redemption price would be equal to 100%
         of the liquidation preference plus all accrued but unpaid dividends,
         and (ii) upon the occurrence of a Triggering Event, (as that term is
         defined in the designations of the Series B Preferred).

         In this event, the redemption price would be equal to 120% of the
         amount of the liquidation preference plus all accrued but unpaid
         dividends. Upon either occurrence, at the Company's discretion XStream
         can pay the redemption price in cash or shares of common stock based
         upon the current conversion price of $0.76.

         On the date which is 42 months from the date of issuance of the Series
         B Preferred (the "redemption date"), at the option of the holder,
         Xstream is required to redeem the outstanding shares of Series B
         Preferred into such number of shares of its common stock equal to the
         liquidation preference plus all accrued but unpaid dividends divided by
         the conversion price then in effect, or for cash at a price equal to
         the number of shares of common stock each holder would be entitled to
         receive at the conversion price then in effect multiplied by $1.85.

         So long as the Series B Preferred is outstanding, without the consent
         of the holders of at least 3/4 of the outstanding shares of Series B
         Preferred the Company cannot; (i) amend the provisions of the Series B
         Preferred, (ii) repurchase, redeem or pay any dividends on its common
         stock or any other securities which rank junior to the Series B
         Preferred, (iii) amend the Articles of Incorporation or By-laws in a
         manner which would materially and adversely affect any right of the
         Series B Preferred, (iv) make any distribution with respect to any
         junior security, (v) voluntarily file for bankruptcy, liquidate its
         assets or make an assignment for the benefit of its creditors (vi)
         change the nature of its business, or, (vii) so long as at least
         $1,500,000 of the Series B Preferred is outstanding, (which represents
         30 shares), authorize or create any class of securities which ranks
         senior to our pari passu with the Series B Preferred.

                                      F-27
<PAGE>

         A registration rights agreement was executed to register the shares
         underlying the note and warrants. Certain liquidated damages of 1.25%
         of the note balance, per month, accrue if stipulated deadlines are not
         met. The SB-2 registration was originally submitted on September 30,
         2004, and resubmitted on October 14, 2005. In December 2005, the
         Company issued 7.14 shares of Series B Preferred stock in lieu of
         payment for $357,223 of liquidated damages. The balance of accrued
         liquidated damages is $90,977 as of December 31, 2005. (See Note 13 -
         Accrued Expense Salaries, Accrued Expense Other)

         The Series B Preferred has no voting rights, it ranks senior to
         Xstream's common stock and to all other classes of its securities which
         do not specifically provide that they are senior to the Series B, but
         subordinate to all of the Company's indebtness, and it pays cumulative
         semi-annual dividends of 6% per annum, payable at the Company's option
         in cash, registered shares of common stock or additional shares of the
         Company's Series B Preferred. If Xstream chooses to pay the dividends
         in registered shares of the Company's common stock, the shares are
         valued at the then conversion price of the Series B Preferred and if
         Xstream chooses to pay the dividends in shares of Series B Preferred,
         those shares are valued at the liquidation preference of the stock. In
         December 2005, the Company issued 3.43 shares of Series B Preferred
         shares as payment of $171,622 for accrued dividends. The dividends
         payable as of December 31, 2005 was $21,006. (See Note 14 - Dividends
         Payable)

         On July 1, 2005, the Company issued 10 shares of Series B Preferred
         stock (convertible to 500,000 shares of restricted common stock) to a
         consultant pursuant to the terms of a service agreement. The shares
         were valued at $1.10, the closing price of the Company's common stock
         as of the grant date. The $550,000 value of the transaction will be
         amortized over the term of the agreement (see Note 21 (B) -
         Stockholders' Equity and Recapitalization).

         In August 2005, one-half of one share of Series B Preferred was
         converted to common stock at the request of the holder, resulting in
         the issuance of 32,895 shares of restricted common stock. the shares
         were valued at par and recorded to additional paid-in capital, with no
         effect on operations.

         In November 2005, 2.82 shares of Series B preferred stock was converted
         to 185,526 shares of restricted common stock at the request of the
         holders. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

         In December 2005, 1.90 shares of Series B preferred stock was converted
         to 125,000 shares of restricted common stock at the request of the
         holders. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

         There are 59 shares of Series B Preferred Stock issued and outstanding
         as of December 31, 2005.

         (B) COMMON STOCK
         ----------------

         In January 2004, the Company issued 5,500 shares of restricted common
         stock for legal services provided to the Company. The shares were
         valued at the then contemporaneous private placement offering price of
         $2.40 per share with the expense of $13,200 recognized immediately.

         In the first quarter, an agreement was made to convert a $15,000 third
         party, non-interest bearing demand note to 5,000 common shares valued
         at the then contemporaneous private placement offering price of $2.40
         per share. The transaction resulted in the Company recognizing a gain
         on conversion of $3,000.

         In January 2004, the company issued 775 of restricted common stock to
         consultants for past services. The shares were valued at the then
         contemporaneous offering price of $2.40 per share with the expense Of
         $1,860 recognized immediately.

         In January 2004, XStream Brands, Inc. entered into an Assignment of
         Trademark with Squeeze Beverage, Inc., for the assignment of all of its
         rights and interests in the Mark of "SQUEEZE" for carbonated Flavored
         soft drinks and seltzer water, including all variations thereof such as
         spelling, formatives, phonetic variations and stylized designs of the
         same and all goodwill associated therewith. The Company issued 20,000
         restricted common shares valued based upon the then contemporaneous
         private placement offering price of $2.40 per share resulting in a
         valuation of $48,000. (See Note 3 - Acquisitions)

         The Company also issued 3,750 common shares to a consultant valued at
         the then contemporaneous private placement offering price of $2.40 per
         share. The services provided are for a period of six months, (January 1
         - June 30, 2004), with the entire $9,000 expensed as of June 30, 2004.

         In February 2004, the Company issued 500,000 shares in consideration of
         employment services provided to the Company: 300,000 shares were issued
         to Theodore Farnsworth, Chairman; 100,000 shares each to Jerome
         Pearring, President/CEO and Barry Willson, Vice President/Secretary.
         The Company retained the services of an independent accounting firm to
         perform a valuation analysis on this transaction; the results were as
         follows: The 300,000 shares were valued at $2.50 per share, while the
         two issuances of 100,000 each were valued at $3.00 per share. As the
         shares were issued for past services, the expense of $1,350,000 was
         recognized immediately.

                                      F-28
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         In February 2004, the Company entered into a Termination Agreement,
         Waiver and Release with two prior officers, terminating their
         consulting agreement of June 2003 by issuing 16,268 restricted common
         shares valued at the then contemporaneous offering price of $2.40 per
         share. A loss of $23,921 was recognized immediately as a result of the
         transaction.

         In March of 2004, the Company issued 5,208 shares of restricted common
         stock for legal services provided to the Company. The shares were
         valued at the then contemporaneous offering price of $2.40 per share
         with the expense of $12,500 recognized immediately. The Company also
         issued 147 shares to a consultant pursuant to the execution of a
         12-month agreement, which stipulates shares to be issued quarterly. Per
         the agreement, the shares were valued at $8.20 per share and an expense
         of $1,206 was recognized immediately.

         The Company issued 30,000 shares to a broker for past services. The
         shares were valued at the then contemporaneous offering price of $2.40,
         with the Company recognizing an expense of $72,000.

         In March 2004, Beverage Network of Hawaii, Inc. ("BNHI"), acquired all
         the assets and certain liabilities of a Hawaii beverage Company for
         12,500 shares of the Company's restricted common stock. The shares were
         valued at the then $2.40 contemporaneous private placement offering
         price resulting in a value of $30,000. (See Note 3 - Acquisitions)

         In March 2004, Beverage Network of Massachusetts, Inc. ("BNMA"),
         acquired substantially all the assets and certain liabilities of a
         Massachusetts beverage company for cash and 20,000 shares of the
         Company's restricted common stock valued at $48,000 based on the then
         contemporaneous private placement offering price of $2.40 per share.
         (See Note 3 - Acquisitions)

         As agreed in January 2004, the Company issued 16,268 common shares to
         two former officers in exchange for $57,418 of liabilities due to them.
         The shares were valued at the best-estimated fair value at that time
         which was the quoted trading price of $5.00 on the agreement date or a
         total $81,339 resulting in a loss on settlement of $23,921.

         During the first quarter, 2004, the Company issued 330,707 shares of
         restricted common stock in consideration of subscriptions for the then
         contemporaneous private placement memorandum at an offering price of
         $2.40 per share for gross proceeds of $793,696 and received an
         additional $137,000 pursuant to subscriptions for which 57,083 shares
         were recorded as issuable. Offering costs were $108,370.

         In April of 2004, the Company issued 32,500 shares of restricted common
         stock to employees for past services. The stock was valued at the then
         contemporaneous private placement offering price of $2.40 per share
         with the Company recognizing a compensation expense of $78,000.

         A six-month consulting agreement was executed on April 13, 2004. The
         agreement stipulated that the individual would be issued 5,000 shares
         of restricted common stock. The Company issued the shares recognizing
         an expense of $5,000 and a deferred expense of $7,000 as of June 30,
         2004. The remaining deferred balance was expensed as of December 31,
         2004.

         On April 8, 2004, the Company executed a contract with a member of its
         advisory board. The term of the contract will continue until either the
         Advisor or the Company terminates the agreement or the Advisor's
         participation in the advisory board by sending written notice to the
         other party. The Company issued 2,500 restricted shares per the
         stipulations of the contract and recognized an expense of $6,000 based
         on the then contemporaneous offering price of $2.40 per share.

         The Company also issued 2,500 shares to a second member of its
         strategic advisory board for the execution of a consulting agreement.
         The term of the contract will continue until either the Advisor or the
         Company terminates the agreement or the Advisor's participation in the
         advisory board by sending written notice to the other party. The
         Company recognized an expense of $6,000 based on the then
         contemporaneous private placement offering price of $2.40 per share.

         In May 2004, the Company issued 30,000 shares to an investment banker
         for past services rendered. The Company recognized an expense of
         $72,000 based on the then contemporaneous offering price of $2.40 per
         share. In May 2004, a note payable of $125,000 was converted into
         52,083 common shares valued at the then contemporaneous private
         placement offering price of $2.40 per share, resulting in no gain or
         loss.

                                      F-29
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         On July 9, Beverage Network of Maryland, Inc. ("BNMD"), executed an
         asset purchase agreement with Master Distributors, Inc. (See Note 3 -
         Acquisitions). A stipulation of the agreement was to issue shares of
         XBNI restricted common stock to current employees of Master
         Distributors, Inc. in consideration of services rendered as well as
         being an incentive to remain in their current positions to ensure a
         seamless transition for all parties involved. The Company issued 21,250
         shares of stock on June 8, 2004 with the contingency that the
         certificates were to be held by an escrow agent until after the six
         month anniversary date of the closing of the asset purchase agreement.
         As of July 1, 2004, these shares were reclassified as deferred expenses
         with the Company recognizing an expense of $25,500 for the quarters
         ending September 30 and December 31, 2004, respectively. The Company
         also issued 96,154 shares to the principal owner of Master
         Distributors, Inc. in advance of the purchase agreement and upcoming
         closing of the transaction. The shares, totaling 117,404, were valued
         at the then contemporaneous offering price of $2.40 and the Company
         recorded compensation expense of $281,769 as of December 31, 2004.

         In April, May and June 2004, the Company issued 69,861 shares,
         previously recorded as issuable as of March 31, 2004.

         During the quarter ended June 30, 2004, the Company issued 255,000
         shares of restricted common stock in consideration of subscriptions
         from the then current private placement memorandum at an offering price
         of $2.40 per share for gross proceeds of $612,000. Additionally, as of
         June 2004, 100,000 shares of common stock became issuable for $240,000
         proceeds received as of June 30, 2004. Offering costs were $138,590.

         In July, August and September 2004, the Company issued 67,500 shares,
         previously recorded as issuable, as of June 30, 2004.

         During the third quarter, 2004, the Company issued 48,300 shares of
         restricted common stock in consideration Of subscriptions for the then
         contemporaneous private placement memorandum at an offering price of
         $2.40 per share for gross proceeds of $115,920 and received an
         additional $24,000 pursuant to subscriptions for which 10,000 shares
         were recorded as issuable. Offering costs were $23,790.

         In July 2004, the Company entered into a ninety day contract with a
         firm to provide investor relations services. The contract stipulated
         that the consultants were to be issued 15,000 shares of restricted
         common stock; the stock was also valued at the current offering price
         of $2.40 and an expense of $36,000 was recognized as of September 30,
         2004.

         A six-month consulting agreement was executed on July 1, 2004; the
         agreement stipulated that the individual would be issued 2,500 shares
         of restricted common stock. The Company issued the shares recognizing
         an expense of $6,000 as of December 31, 2004.

         In August 2004, the Company issued 7,500 shares to an employee pursuant
         to the stipulations of the employee agreement which has a term of six
         month. The shares were valued at the private placement offering price
         of $2.40; an expense of $18,000 was recognized for the period ending
         December 31, 2004.

         During the same period, the Company issued 17,500 and 29,598 shares of
         restricted common stock to employees for past services. The stock was
         valued at the contemporaneous private placement offering price of $2.40
         per share with the Company recognizing a compensation expense of
         $113,035.

         The Company also issued 4,167 restricted shares on behalf of its
         subsidiary, Beverage Network of Hawaii, Inc., as a settlement for a
         note and for past services rendered. The shares were valued at $2.40
         which resulted in a settlement gain of $39,999.

         In September 2004, 3,600 shares were issued to a consultant according
         to the terms of an agreement. The shares were also valued at the
         contemporaneous offering price of $2.40 and the Company recognized an
         expense of $8,640 for the period ending December 31, 2004.

         The Company also issued 2,500 shares to a member of its strategic
         advisory board for the execution of a consulting agreement. The term of
         the contract will continue until either the Advisor or the Company
         terminates the agreement or the Advisor's participation in the advisory
         board by sending written notice to the other party. The Company
         recognized an expense of $6,000 for this period, based on the
         contemporaneous private placement offering price of $2.40 per share.

         The Company issued 43,750 shares of restricted common shares to an
         investment banking firm as pursuant to the agreements related to the
         August 2, 2004 Preferred Series B stock sale (See Preferred Stock
         above) According to the terms of the agreement, the investment banker
         was entitled to these shares for acting as the placement agent in the
         transaction. The shares were valued at the contemporaneous common stock
         offering price of $2.40; the Company recognized offering costs of
         $105,000 as of December 31, 2004.

         In September 2004, the Company issued 20,000 restricted shares
         according to the terms of an agreement entered into with a firm for
         investor relations. The agreement is to remain in effect until
         cancelled by either party. Upon valuing the shares at $2.40, the
         Company recognized an expense of $48,000 for the period ending December
         31, 2004.

                                      F-30
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         On October, 2004, the Company issued 12,500 shares of restricted common
         stock to a consultant for current services pursuant to the terms of the
         contract. The shares were valued at $1.80 which was the closing price
         of the stock on the grant date. An expense of $22,500 was recognized
         for the period ending December 31, 2004.

         The Company also issued 3,445 shares to an individual for accounting
         services provided to the Company. The shares were valued at $1.70, the
         fair market value on the date of issuance, resulting in an expense of
         $5,857.

         In November, 2004, the Company issued 19,824 restricted common shares
         for legal services. The shares were valued at $1.32 based on the
         closing price on the grant date. An expense of $26,167.68 was
         recognized for the period ending December 31, 2004.

         The Company also issued 2,500 shares to a second member of its
         strategic advisory board for the execution of a consulting agreement.
         The term of the contract will continue until either the Advisor or the
         Company terminates the agreement or the Advisor's participation in the
         advisory board by sending written notice to the other party. The
         Company recognized an expense of $3,300 based on the closing price of
         the stock on the date it was granted.

         There were 8,000 shares of restricted common stock issued to a firm for
         investor relations. The issuance was for the current period so an
         expense of $10,560 was recognized as of December 31, 2004, based on the
         closing price of the stock on the grant date.

         The Company entered into a one year consulting agreement with a former
         key member of management of Beverage Network of Maryland, Inc.
         ("BNMD"). The agreement stipulated that the individual was to receive
         240,000 shares of restricted common stock for the term of the
         agreement. The closing price of the stock on the grant date was $1.75;
         the term of the agreement is for calendar year, 2005; therefore, the
         entire value of the transaction, $420,000, was considered deferred as
         of December 31, 2004. Of the 240,000 shares stipulated in the
         agreement, 90,000 were issued and the remaining balance of 150,000
         shares were issuable as of December 31, 2004.

         During the period of October 1, 2004 through December 31, 2004, the
         Company issued 5,000 shares of common stock, previously recorded as
         issuable as of September 30, 2004

         The Company entered into a one year consulting agreement with a former
         key member of management of Beverage Network of Maryland, Inc.
         ("BNMD"). The agreement stipulated that the individual was to receive
         240,000 shares of restricted common stock for the term of the
         agreement. The closing price of the stock on the grant date was $1.75;
         the term of the agreement is for calendar year, 2005; therefore, the
         entire value of the transaction, $420,000, was considered deferred as
         of December 31, 2004. The Company has recognized consulting expense of
         $420,000 as of December 31, 2005.

         On January 3, 2005, the Company entered into a one year agreement for
         consulting services. As consideration for these services, the
         consultant was issued 150,000 restricted shares of the Company's common
         stock valued at $1.70, the closing price of the stock on the grant
         date. The Company recognized consulting expense of $255,000 for the
         twelve months ending December 31, 2005.

         In January 2005, the Company entered into a second, one year agreement
         for consulting services. As consideration for these services, the
         consultant was issued 200,000 restricted shares of the Company's common
         stock valued at $1.67, the closing price of the stock on the grant
         date. The Company recognized consulting expense of $334,000 for the
         twelve months ended December 31, 2005.

         On February 8, 2005, the Company issued 10,000 shares of its restricted
         common stock in consideration of a debt holder for deferring cash
         payments that were due on October 15, 2004 and January 15, 2005,
         respectively. The shares were valued at $1.40, the closing price on the
         date of grant. Interest expense in the amount of $14,000 was recognized
         for the twelve months ending December 31, 2005.

         The Company also issued 150,000 shares of its restricted common stock
         to the principal owner of Master Distributors, (See Note 3,
         Acquisitions), in consideration for deferring all cash payments until
         June 15, 2005. The stock was valued at $1.62, the closing price on the
         date of grant. The Company recognized interest expense of $243,000 for
         the twelve months ended December 31, 2005.

         The Company issued 4,472 shares of restricted common stock for legal
         services rendered. The shares were valued at $1.50, the closing price
         on the date of grant, with an expense of $6,708 being recognized as of
         December 31, 2005.

         The Company entered into a consulting agreement for a term of six
         months. As consideration for services, the consultants were granted
         15,000 shares of restricted common stock valued at $1.20. This was the
         closing price of stock on the date of grant resulting in an expense of
         $18,000 as of December 31, 2005.

         Pursuant to the terms of a consulting agreement commencing in October
         2004, the Company issued 8,000 shares of restricted common stock for
         services rendered. The shares were valued at $1.20 and the Company
         recognized a consulting expense of $9,600.

                                      F-31
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         According to the terms of the convertible term loan, (See Note 16 -
         Convertible Term Loan), the Company issued 100,000 shares of restricted
         common stock as a pledge for collateral. The shares were valued at par
         value as they are considered issued but not outstanding as of December
         31, 2005.

         In March 2005, the Company issued 4,546 shares of restricted common
         stock to a consultant for services rendered. An expense of $5,683 was
         recognized with the shares being valued at the grant date price of
         $1.25.

         The Company also issued 7,000 shares, previously recorded as issuable,
         as of December 31, 2004.

         In April 2005, the Company executed a six month consulting agreement.
         The consideration for services was 200,000 shares of restricted common
         stock which were valued at $1.15, the closing price on the date of
         grant. For the twelve months ended December 31, 2005, the Company
         recognized consulting expense of $230,000.

         There were also issued 20,000 shares, previously recorded as issuable,
         as of December 31, 2004.

         In May 2005, the Company also issued 5,035 shares of restricted common
         stock to a consultant for services rendered. An expense of $5,035 was
         recognized with the shares being valued at the grant date price of
         $1.00.

         The Company also executed a six month consulting agreement for
         consideration consisting of 50,000 shares of restricted common stock.
         The closing price on the date of grant was $1.00; the expense
         recognized as of December 31, 2005 was $50,0000.

         In June 2005, the Company issued 5,000 shares to the holder of a note
         assumed with the acquisition of Beverage Network of Massachusetts,
         Inc., "BNMA", for deferring payments through June 15, 2005, (See Note -
         3 Acquisitions). The shares were valued at $1.00, the closing price on
         the date of grant with an expense of $5,000 being recognized for the
         period ended December 31, 2005.

         In June 2005, 265,053 warrants were exercised under a cashless exercise
         provision resulting in the issuance of 263,306 shares of common stock.

         The Company also executed a six month consulting agreement for
         consideration consisting of 500,000 shares of restricted common stock.
         The shares were valued at $1.00; the closing price on the date of
         grant. The Company recognized a consulting expense of $500,000 for the
         fiscal year ended December 31, 2005.

         A second consulting agreement with a term of twelve months was also
         executed with consideration for services consisting of 25,000 shares of
         restricted common stock. The shares were valued at $1.00; the closing
         price on the date of grant. The Company recognized consulting expenses
         of $14,629 with a remaining deferred component of $10,371 as of
         December 31, 2005.

         In June 2005, the Company has also entered into a series of related
         agreements with Cogent Capital Corp. and 16 institutional accredited
         investors pursuant to which the Company has issued 19,736,848 Common
         shares at a purchase price of $0.76 per share in exchange for a total
         of $15,000,000 in U.S. government bonds. The price per common share was
         based on a discount of 20% from the closing price of the common stock
         on May 26, 2005. The U.S. government bonds were issued at current
         market value. The transaction resulted in the Company recording a
         subscription receivable in the amount of $15,000,000 (See Note 22 -
         Subscription Receivable).

         Pursuant to the terms of the executed Cogent Agreement, the Company
         issued 1,381,579 restricted common shares as an entry fee. The shares
         were valued at par value and recorded to additional paid-in capital.

         In July 2005, the Company issued 14,118 shares of restricted common
         stock for services rendered, pursuant to the terms of a consulting
         agreement commencing in October 2004. The shares were valued at $1.10
         and the Company recognized a consulting expense of $15,530.

         The Company also issued 7,662 shares of restricted common stock as
         consideration for accounting services. The shares were valued at $1.10,
         the closing price on the grant date, resulting in an expense of $8,428.

         The Company executed a twelve month consulting agreement on July 1,
         2005. The consultant was granted 500,000 restricted common shares and
         10 Series B Preferred shares which can convert into 500,000 restricted
         shares (see (A) Preferred Stock above). The shares were valued at
         $1.10, the closing price of the stock on the agreement date. The
         Company recognized an expense of $553,022 with a remaining deferred
         component of $546,978 as of December 31, 2005.

                                      F-32
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         The Company executed a second consulting agreement for a six month term
         commencing on July 12, 2005. The consultant was granted 10,000
         restricted common shares valued at $0.95; the closing price of the
         stock on the grant date. The Company recognized and expense of $8,880
         with a remaining deferred component of $620 as of December 31, 2005.

         The Company issued 10,000 restricted common shares to a consultant for
         services rendered. The shares were valued at $1.05; the closing price
         of the stock on the contract execution date resulting in an expense of
         $10,500.

         In August 2005, one-half of one share of Series B Preferred was
         converted to 32,895 shares of restricted common stock at the request of
         the holder. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

         In August 2005, 750 restricted common shares were issued to an employee
         pursuant to the terms of an agreement executed with the acquisition of
         Ayer Beverage, Inc. ("BNMA"). The shares were valued at $0.80, the
         closing price on the date of grant, resulting in an expense of $600 as
         of December 31, 2005.

         The Company also issued 25,000 shares of restricted common stock to
         Ayer Beverage, Inc., ("BNMA") in consideration for deferring all
         payments on the March 2004, non-interest bearing promissory note (see
         Note 15 - Loans Payable) through December 31, 2005. The share value of
         $0.80 was based on the closing price of the stock as to the grant date.
         The Company recognized an expense of $20,000 as of the fiscal year
         ending December 31, 2005.

         The Company also issued 7,895 shares of restricted common stock for
         services rendered, pursuant to the terms of a consulting agreement
         commencing in October 2004. The shares were valued at $0.70 and the
         Company recognized a consulting expense of $5,527.

         The Company extended a consulting agreement, originally executed in
         February 2005, for an additional eight months through March 15, 2006.
         In consideration, the consultant was granted 100,000 restricted common
         shares valued at $0.70, the closing price of the stock on the date the
         agreement was extended. The Company recognized consulting expense of
         $41,381 with a remaining deferred component of $28,619 as of December
         31, 2005.

         In September 2005, the Company executed an addendum to a Financial
         Advisory and Investment Banking Agreement, originating in April 2005.
         In consideration for the continued services the Company issued 300,000
         shares of restricted common stock. The stock was valued at $0.55, the
         closing price on the grant date with the Company recognizing and
         expense of $165,000 as the agreement can be cancelled by either party
         within 30 days notice.

         In November 2005, 2.82 shares of Series B preferred stock was converted
         to 185,526 shares of restricted common stock at the request of the
         holders. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

         The Company issued 301,950 shares of restricted common stock to
         subscribers as a result of purchasing 3,019,500 units in the debt
         placement financing (see Note 16 - Convertible Term Loan). The shares
         values ranged from $0.43-$1.05, the closing price of the stock on the
         date subscriptions were executed. The total value was $236,471 and is
         being recognized of the term of the notes which contain due dates
         ranging from June 30, 2006 to November 8, 2006. The Company
         recognized interest expense of $101,609 for the twelve months ending
         December 31, 2005, with a remaining deferred balance of $134,862.

         The Company executed a twelve month consulting agreement, commencing
         November 11, 2005, in consideration of 200,000 shares of restricted
         common stock. The shares were valued at $0.40; the closing price on the
         date of grant. The Company recognized consulting expense of $10,959
         with a remaining deferred Component of $69,041 as of December 31, 2005.

         The Company executed a consulting agreement in consideration of 75,000
         shares of restricted common stock valued at $0.22; the closing price of
         the stock on the grant date. The agreement may be terminated at any
         time when notice is received by either party. The Company recognized an
         expense of $16,500 for twelve months ending December 31, 2005.

         The Company executed a consulting agreement for a term of twelve
         months, commencing November 30, 2005. In consideration for services,
         the consultant received 300,000 shares of restricted common stock
         valued at $.22; the closing price on the grant date. For the period
         ending December 31, 2005, the Company recognized an expense of $5,605
         with a remaining deferred component of $60,395.

         In December 2005, 1.9 shares of Series B preferred stock was converted
         to 125,000 shares of restricted common stock at the request of the
         holders. The shares were valued at par and recorded to additional
         paid-in capital, with no effect on operations.

                                      F-33
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         The Company issued 100,000 shares of restricted common stock pursuant
         to the terms of an employee termination agreement. The shares were
         valued at $0.51; the closing price of the stock on the grant date. The
         Company recognized compensation expense of $51,000 for the twelve
         months ending December 31, 2005.

         On December 23, 2005, the Company executed a 60 day promissory note,
         resulting in gross proceeds of $100,000. Attached to the note was a
         provision for the Company to issue 50,000 shares of restricted common
         stock to the holder. The shares were valued at $0.44; the closing price
         on the date of grant. The Company recognized an expense of $2,627 with
         a remaining deferred component of $19,373 to be amortized though
         February 23, 2006.

         Pursuant to the terms of the December 23, 2005 promissory note the
         Company was to issue, in its own name, 250,000 shares of restricted
         common stock as a pledge for collateral on the $100,000 note. The
         shares were valued at par value as they are considered issued but not
         outstanding as of December 31, 2005.

         On December 15, 2005, the Company executed a six month consulting
         agreement in consideration of 100,000 shares of restricted common
         stock, valued at $0.51. The Company recognized and expense of $4,484
         with a remaining deferred balance of $46,516 at December 31, 2005.

         (C) STOCK WARRANTS
         ------------------

         In March 2004, the Company signed an agreement with a company to act as
         placement agent to arrange the sale of debt, equity or equity-linked
         securities on behalf of the Company. In accordance with the terms of
         the agreement, the Company granted the placement agent a retainer
         consisting of 37,500 warrants exercisable at $0.20 for five years,
         37,500 warrants exercisable at $1.50 for five years, 37,500 warrants
         exercisable at $3.00 for five years. The warrants were valued at an
         aggregate $556,009 or $4.97, $4.92, $4.88 per option, respectively,
         were recognized as consulting expense at issuance. Upon the closing of
         the Laurus Master Fund financing transaction on May 14, 2004, the
         Company recorded a liability for derivatives in the amount of $498,567.
         As of December 31, 2004 and 2005, the Company reflected derivative
         liability balances of $157,606 and $19,226, respectively. The issuance
         of the 12% convertible term loans originating on June 30, 2005
         triggered an adjustment in the exercise price of the warrants. The
         exercise price of the warrants decreased from $1.50-$3.00 to $0.76; The
         fair market value of the stock warrants granted to the consultant was
         estimated on the date of grant using the Black-Scholes Model in
         accordance with Statement No. 123 using the following assumptions:
         expected dividend yield 0%, risk-free interest rate of 1.58%,
         volatility 191% and expected term of five years.

         On May 14, 2004, the Company secured a financing arrangement with
         Laurus Master Funds, Ltd. ("Laurus Funds"), (See note 17 - Current
         Portion, Long Term Debt). The financing consists of a $3 million Senior
         Secured Convertible Note that bears interest at the rate of prime plus
         two percent and has a term of three years, (May 14, 2007). The Company
         then issued 426,250 options to the placement agent mentioned above, as
         they were directly engaged in securing the Laurus transaction. The five
         year warrants were exercisable at $1.50 and the Company recorded the
         fair value of the options as capitalized funding costs with an offset
         to derivative liability in the amount of $1,879,809 at the date of
         issuance. (See Note 8 - Capitalized Funding Costs) The issuance of the
         12% convertible term loans originating on June 30, 2005 triggered an
         adjustment in the exercise price of the warrants; the exercise price of
         the warrants decreased from $1.50 to $0.76. (The transaction was valued
         using the Black-Scholes model with the following assumptions expected
         dividend yield of 0% risk-free interest rate of 2.53%, volatility 124%
         and expected term of 5 years.)

         On August 2, 2004 Xstream Beverage Group, Inc. sold 43.2 shares of our
         Series B Convertible Preferred Stock to nine accredited investors and
         issued the purchasers Series A Common Stock Purchase Warrants and
         Series B Common Stock Purchase Warrants in a private transaction exempt
         from registration under the Securities Act of 1933 in reliance on
         Section 4(2) of that act and Rule 506 of Regulation D. Pursuant to the
         terms of the placement documents (stipulating the debt instrument is
         convertible or redeemable at the discretion of the holder at the end of
         the 42 month term), the trans- action was classified as Mezzanine
         Financing and the balance of the $2,160,000 gross proceeds is reflected
         as of December 31, 2005, (See Note 21 - (A) Stockholders' Equity and
         Recapitalization ), the Company compensated a placement agent engaged
         in the transaction with warrants to purchase the Company's common stock
         consisting of 160,941 warrants exercisable at $1.50 for five years,
         118,588 warrants exercisable at $2.00 for five years, 144,000 warrants
         exercisable at $4.00, for five years. The fair value of the warrants
         were valued at an aggregate $1,359,712 recorded as capitalized funding
         costs and derivative liability at the date of issuance. The issuance of
         the 12% convertible term loans originating on June 30, 2005 triggered
         an adjustment in the exercise price of the warrants. The exercise price
         of the warrants decreased from a range of $1.50-$4.00 to $0.76. (The
         transaction was valued using the Black-Scholes Model with the following
         assumptions: expected dividend yield of 0%, risk-free interest rate of
         2.51%, volatility 161% and expected term of five years.

                                      F-34
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         In January 2005, the Company entered into a one year agreement for
         consulting services. The agreement stipulated that a warrant to
         purchase 50,000 shares of common stock be issued. The warrants are
         exercisable at $2.00 per share. The issuance of the 12% convertible
         term loans originating on June 30, 2005 triggered an adjustment in the
         exercise price of the warrants; the exercise price of the warrants
         decreased from $1.50 to $0.76. The fair value of such warrants were
         recorded as a derivative liability amounting to $69,162 at the date of
         issuance. (The transaction was valued using the

         Black-Scholes model with an interest rate of 3.01%, volatility of 96%,
         zero dividends and expected term of five years).

         On January 3, 2005, the Company entered into a one year agreement for
         consulting services. The agreement stipulated as consideration of
         services, the Company grant warrants for the

         purchase 200,000 shares of common stock to be issued, as follows:
         100,000 at $4.00 per share and 100,000 at $5.00 per share. The fair
         value of the warrants, $220,017, were recorded as a derivative
         liability at the date of issuance. The issuance of the 12% convertible
         term loans originating on June 30, 2005 triggered an adjustment in the
         exercise price of the warrants; the exercise price of the warrants
         decreased from $1.50 to $0.76 (computed using a Black-Scholes model
         with an interest rate of 3.22%, volatility of 104.25%, zero dividends
         and expected term of five years).

         In January 2005, the Company entered into another one year agreement
         for consulting services. The agreement stipulated as consideration of
         services, the Company granted warrants for the purchase of 300,000
         shares of common stock issued as follows: 100,000 warrants at $2.00 per
         share, 100,000 warrants at $2.50 per share, 100,000 warrants at $3.00
         per share. The fair value of the warrants, $371,825, were recorded as a
         derivative liability at the date of issuance. The issuance of the 12%
         convertible term loans originating on June 30, 2005 triggered an
         adjustment in the exercise price of the warrants; the exercise price of
         the warrants decreased from $1.50 to $0.76 (computed using a
         Black-Scholes model with an interest rate of 3.22%, volatility of
         104.25%, zero dividends and expected term of five years).

         On January 15, 2005, the Company issued Laurus warrants to purchase
         165,000 shares of the Company's common stock with an exercise price of
         $2.00 per share which expire July 20, 2014. The warrants were issued as
         interest in consideration for the release of $398,595 of the restricted
         cash. The fair value of such warrants were recorded as a derivative
         liability in the amount of $216,215 at the date of issuance (The
         transaction was valued using the Black-Scholes Model with the following
         assumptions: expected dividend yield of 0.0%, risk-free interest rate
         of 3.22%, volatility of 88.93% and expected term of 10 years).

         On February 25, 2005, the Company issued warrants to purchase 300,000
         shares of common stock exercisable at $1.50 in accordance with the
         terms of the convertible term loan. (See Note 16 - Convertible Term
         Loan) The fair value note and warrants were recorded as a derivative
         liability in the amount of $269,488 at the date of issuance (computed
         using the Black-Scholes model with an interest rate of 3.38%,
         volatility of 87.86%, zero dividends and expected term of five years).

         On February 25, 2005, the Company entered into a six month agreement
         for financial consulting services. The Company agreed to issue warrants
         to purchase 40,000 shares of restricted common stock at $1.50. The
         Company recorded a derivative liability in the amount of $35,932 for
         the fair value of the warrants at the date of issuance (computed using
         a Black-Scholes model with an interest rate of 3.38%, volatility of
         87.86%, zero dividends and expected term of five years).

         In April 2005, the Company issued warrants to purchase 290,000 shares
         of common stock exercisable at $1.50 in accordance with the terms of
         the convertible term loan, (See Note 16 - Convertible Term Loan). The
         Company recorded a derivative liability in the amount of $240,746 for
         the fair value of the warrants at the date of issuance (computed using
         the Black-Scholes model with an interest rate of 3.65%, volatility of
         90.46%, zero dividends and expected term of five years).

         On April 4, 2005, the Company executed a sixty month consulting
         agreement in consideration of granting warrants to purchase 127,059
         shares at $1.50 and 169,412 shares at $2.00. The Company recorded a
         derivative liability in the amount of $171,527 for the fair value of
         the warrants at the date of issuance (computed using the Black-Scholes
         model with an interest rate of 3.65%, volatility of 73.35%, zero
         dividends and expected term of five years). The issuance of the 12%
         convertible term loans originating on June 30, 2005, triggered an
         adjustment in the exercise price of the warrants; the exercise price of
         the warrants ranging from $1.50-$2.00 decreased to $0.76.

         On April 7, 2005, the Company executed a twelve month consulting
         agreement in consideration of granting warrants to purchase 150,000
         shares of common stock at $1.50; The Company recorded consulting
         expense and a derivative liability in the amount of $121,283 for the
         fair value of the warrants at the date of issuance (computed using the
         Black-Scholes model with an interest rate of 3.65%, volatility of
         83.09%, zero dividends and expected term of five years). The issuance
         of the 12% convertible term loans originating on June 30, 2005
         triggered an adjustment in the exercise price of the warrants from
         $1.50 to $0.76.

                                      F-35
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         In May 2005, the Company issued warrants to purchase 135,000 shares of
         common stock exercisable at $1.50 in accordance with the terms of the
         convertible term loan, (See Note 16 - Convertible Term Loan) The
         Company recorded a derivative liability in the amount of $117,860 at
         the date of issuance (computed using the Black-Scholes model with an
         interest rate of 3.64%, volatility of 94.78%, zero dividends and
         expected term of five years).

         In June 2005, the Company executed a twelve month consulting agreement
         in consideration of granting warrants to purchase 150,000 shares of
         common stock at $1.50. The Company recorded consulting

         expense and a derivative liability in the amount of $91,515 for the
         fair value of the warrants at the date of issuance (computed using the
         Black-Scholes model with an interest rate of 3.64%, volatility of
         83.65%, zero dividends and expected term of five years).

         On June 30, 2005 the Company issued 394,729 warrants to purchase common
         stock as placement agent fees attributed to the Cogent Capital
         transaction (See Note 18 - Derivative Liability). The Company recorded
         a derivative liability in the amount of $240,902 for the fair value of
         the warrants at the date of issuance (Computed using the Black-Scholes
         model with an interest rate of 3.64%, volatility of 77.36%, zero
         dividends and expected term of five years).

         In July 2005, the Company issued warrants to purchase 1,400,000 shares
         of restricted common stock exercisable at $0.76 in accordance with the
         terms of the convertible term loan, (See Note 16 -

         Convertible Term Loan). The Company recorded a derivative liability in
         the amount of $1,281,624 for the fair value of the warrants at the date
         of issuance (computed using the Black-Scholes model with an interest
         rate of 3.64%, volatility of 77.36%, zero dividends and expected term
         of five years).

         Pursuant to the terms of a Financial Advisory and Investment Banking
         agreement, the Company issued 324,211 warrants to purchase restricted
         common stock in consideration as placement agent fees for subscribers
         purchasing 1,400,000 units of the debt placement financing (See Note 16
         - Convertible Term Loan). The Company recorded a derivative liability
         in the amount of $197,865 for the fair value of the warrants at the
         date of issuance (computed using the Black-Scholes model with an
         interest rate of 3.64%, volatility of 77.36%, zero dividends and
         expected term of five years).

         The Company issued warrants to purchase 215,000 shares of restricted
         common stock exercisable at $0.76 in accordance with the terms of the
         convertible term loan, (See Note 16 - Convertible Term Loan). The
         Company recorded a derivative liability in the amount of $245,850 for
         the fair value of the warrants at the date of issuance (computed using
         the Black-Scholes model with an interest rate of 3.87%, volatility of
         81.62%, zero dividends and expected term of five years).

         Pursuant to the terms of a Financial Advisory and Investment Banking
         agreement, the Company issued 49,789 warrants to purchase restricted
         common stock in consideration as placement agent fees for subscribers
         purchasing 215,000 units of the debt placement financing (See Note 16 -
         Convertible Term Loan). The Company recorded a derivative liability in
         the amount of $37,956 for the fair value of the warrants at the date of
         issuance (computed using the Black-Scholes model with an interest rate
         of 3.87%, volatility of 81.62%, zero dividends and expected term of
         five years).

         In August 2005, the Company issued warrants to purchase 475,000 shares
         of restricted common stock exercisable at $0.76 in accordance with the
         terms of the convertible term loan, (See Note 16 - Convertible Term
         Loan). The Company recorded a derivative liability in the amount of
         $415,850 for the fair value of the warrants at the date of issuance
         (computed using the Black-Scholes model with an interest rate of 4.04%,
         volatility of 93.60%, zero dividends and expected term of five years).

         Pursuant to the terms of a Financial Advisory and Investment Banking
         agreement, the Company issued 110,000 warrants to purchase restricted
         common stock in consideration as placement agent fees for subscribers
         purchasing 475,000 units of the debt placement financing (See Note 16 -
         Convertible Term Loan). The Company recorded a derivative liability in
         the amount of $64,201 for the fair value of the warrants at the date of
         issuance (computed using the Black-Scholes model with an interest rate
         of 4.04%, volatility of 93.60%, zero dividends and expected term of
         five years).

         In September 2005, the Company issued warrants to purchase 357,500
         shares of restricted common stock exercisable at $0.76 in accordance
         with the terms of the convertible term loan, (See Note 16 - Convertible
         Term Loan). The Company recorded a derivative liability in the amount
         of $282,456 for the fair value of the warrants at the date of issuance
         (computed using the Black- Scholes model with an interest rate of
         3.95%, volatility of 100.29%, zero dividends and expected term of five
         years).

                                      F-36
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         Pursuant to the terms of a Financial Advisory and Investment Banking
         agreement, the Company issued 82,789 warrants to purchase restricted
         common stock in consideration as placement agent fees for subscribers
         purchasing 357,500 units of the debt placement financing (See Note 16 -
         Convertible Term Loan). The Company recorded a derivative liability in
         the amount of $43,607 for the fair value of the warrants at the date of
         issuance (computed using the Black-Scholes model with an interest rate
         of 3.95%, volatility of 100.29%, zero dividends and expected term of
         five years).

         The Company issued warrants to purchase 375,000 shares of restricted
         common stock exercisable at $0.76 in accordance with the terms of the
         convertible term loan, (See Note 16 - Convertible Term Loan). The
         Company recorded a derivative liability in the amount of $170,890 for
         the fair value of the warrants at the date of issuance (computed using
         the Black-Scholes model with an interest rate of 3.95%, volatility of
         97.15%, zero dividends and expected term of five years).

         Pursuant to the terms of a Financial Advisory and Investment Banking
         agreement, the Company issued 86,842 warrants to purchase restricted
         common stock in consideration as placement agent fees for subscribers
         purchasing 375,000 units of the debt placement financing (See Note 16 -
         Convertible Term Loan). The Company recorded a derivative liability in
         the amount of $25,152 for the fair value of the warrants at issuance
         (computed using the Black-Scholes model with an interest rate of 3.95%,
         volatility of 97.15%, zero dividends and expected term of five years).

         The Company extended a consulting agreement, originally executed in
         February 2005 for an additional eight months through March 15, 2006. In
         consideration, the consultant was granted warrants to purchase 50,000
         restricted common shares at $0.76. The Company recorded a derivative
         liability in the amount of $19,822 for the fair value of the warrants
         at the date of issuance (computed using the Black-Scholes model with an
         interest rate of 4.0%, volatility of 100.29%, zero dividends and
         expected term of five years).

         In November 2005, the Company issued warrants to purchase 197,000
         shares of restricted common stock exercisable at $0.76 in accordance
         with the terms of the convertible term loan, (See Note 16 - Convertible
         Term Loan). The Company recorded a derivative liability in the amount
         of $102,898 for the fair value of the warrants at the date of issuance
         (computed using the Black- Scholes model with an interest rate of
         4.42%, volatility of 125.56%, zero dividends and expected term of five
         years).

         Pursuant to the terms of a Financial Advisory and Investment Banking
         agreement, the Company issued 45,621 warrants to purchase restricted
         common stock in consideration as placement agent fees for subscribers
         purchasing 197,000 units of the debt placement financing (See Note 16 -
         Convertible Term Loan). The Company recorded a derivative liability in
         the amount of $15,886 for the fair value of the warrants at the date of
         issuance (computed using the Black-Scholes model with an interest rate
         of 4.42%, volatility of 125.56%, zero dividends and expected term of
         five years).

          A summary of the options and warrants issued as of December 31, 2005
         and 2004 and changes during the years is presented below:

<TABLE>
<CAPTION>
                                                        2005                        2004
                                              ----------------------------------------------------
                                                            Weighted                      Weighted
                                                             Average                       Average
                                              Number of     Exercise       Number of       Exercise
                                               Warrants      Price         Warrants         Price
                                              ---------     -------        ---------      ---------
         <S>                                  <C>           <C>            <C>             <C>

         Stock Warrants

         Balance at beginning of year         4,030,904     $  3.02           17,125       $    4.54
         Granted                              6,189,953     $  0.88        4,013,779       $    2.72
         Exercised                             (263,309)    $  0.70              -0-       $     -0-
         Forfeited                                  -0-     $   -0-              -0-       $     -0-
                                              ---------     -------        ---------      ----------
         Balance at end of year               9,957,548     $  1.22        4,030,904       $    3.02
                                              =========     =======        =========      ==========
         Options exercisable end of year      9,957,548     $  1.22        4,030,904       $    3.02
                                              ---------     -------        ---------       ---------
          Weighted average fair value of

           options granted during the year                  $  0.88                        $    2.72
                                                            =======                        =========
</TABLE>


                                      F-37
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005



         The following table summarizes information about stock warrants
         outstanding at December 31, 2005:
<TABLE>
<CAPTION>
                   Warrants Outstanding                                            Warrants Exercisable
-----------------------------------------------------------------------------------------------------------------
                                                         Weighted         Weighted                       Weighted
            Range of                 Number               Average          Average          Number        Average
            Exercise              Outstanding at         Remaining        Exercise      Exercisable at   Exercise
             Price               December 31, 2005      Contractual        Price      December 31, 2005    Price
        --------------           -----------------      -----------       --------    -----------------  ---------
       <S>                           <C>                <C>               <C>             <C>            <C>
       $   6.40 - 100.00               242,125          7.90 Years        $  12.46          242,125      $  12.46
       $   3.00 -   6.39               147,500          8.55 Years        $   3.34          147,500      $   3.34
       $   1.50 -   2.99             1,399,000          6.21 Years        $   1.73        1,399,000      $   1.73
       $            0.76             8,159,459          4.17 Years        $   0.76        8,159,459      $   0.76
       $            0.20                 9,464          5.07 Years        $   0.20            9,464      $   0.20
                                     ---------                            --------        ---------      --------
                                     9,957,548                            $   1.22        9,957,548      $   1.22
                                     =========                            ========        =========      ========
</TABLE>


NOTE 22 - SUBSCRIPTION RECEIVABLE:
----------------------------------

         The Company has entered into a series of related agreements with a
         placement agent and certain investors pursuant to which the Company has
         issued 19,736,848 common shares at a purchase price of $0.76 per share.
         The fair value of such shares at the date of issuance amounted to
         $15,000,000. The price per common share was based on a discount of 20%
         from the closing price of the common stock on May 26, 2005. In
         connection with the issuance of shares, the investors deposited
         $15,000,000 in US government bonds, which are held by the placement
         agent for the potential future benefit of the Company.

         In conjunction with this investment, the Company and the placement
         agent entered into an escrow agreement with the investors as well as
         Cogent pursuant to which the 15,789,472 shares, as well
         as the bonds, were deposited with the designated escrow agent. In
         addition, the Company and the placement agent entered into the
         following agreements:

         1.       2002 Master Agreement conforming to the form of the
                  International Swaps and Derivatives Association, Inc.;

         2.       Credit Support Annex to the Master Agreement consistent with
                  the ISDA form;

         3.       Equity swap transaction letter of agreement; and

         4.       Equity option transaction letter of agreement.

         Under the terms of the equity swap, the 15,789,472 common shares and
         the bonds are maintained in escrow until the earlier of 42 months or
         such time as all of these shares are covered by an effective
         registration statement filed with the SEC. The Company, however, is not
         obligated to register the common shares.

         Pursuant to the series of arrangements with the placement agent, the
         Consideration that the Company will receive in connection with the
         issuance of the shares to the investors will vary based on the
         Company's stock price at predetermined periods ("Subscription
         Receivable"). In addition, the Company unilaterally can terminate the
         agreement by exercising the call option for the common shares in
         escrow. The Company does not intend to exercise its call option.

         The Subscription Receivable is computed as follows: at the earliest of
         the Company's completion of a registration statement covering the
         19,736,848 common shares of the Company or the common shares have
         satisfied the holding period under Rule 144-K at June 10, 2007, the
         Company will be entitled to receive a quarterly amount equal to
         2,631,578 shares times the Company's price per share of common stock
         for the last ten days of the preceding quarter. At that time, the
         shares and the corresponding value of the funds are released from
         escrow to the appropriate party.

         As additional consideration, the Company has agreed to compensate the
         private placement agent with a monthly payment amounting to LIBOR +
         1.25% times $15,000,000, less the interest earned on the US Government
         bonds. This amount is payable until the funds and the shares are
         released from escrow. The Company estimates the aggregate payments
         under this arrangement to amount to $1,178,250 over the terms of the
         agreement. The Company has recorded a corresponding amount as accrual
         for placement agent fees at the date of issuance of shares, which was
         offset against additional paid-in capital. Payments
         totaling $28,050 were applied with a remaining balance of $1,150,470 as
         of December 31, 2005 (see Note 13 - Accrued Expense-Salaries, Accrued
         Expense-Other).

                                      F-38
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         The Company adjusts quarterly the amount of the subscription receivable
         to reflect the variations in its stock price. Additionally, the Company
         discounts the Subscription Receivable to reflect the time value of
         money until it is entitled to receive the Subscription Receivable. At
         the date of issuance of the shares, the Company recorded a subscription
         receivable of $12,718,150, adjusted for a discount of $1,082,211. The
         Company used a discount rate of 3.66% at the date of issuance and a
         stock price of $0.92. At December 31, 2005, the Subscription Receivable
         amounted to $6,289,722, adjusted for a discount of $468,174. The
         Subscription receivable at December 31, 2005 is based on a discount
         rate of 4.22% and a stock price of $0.43. The decrease in subscription
         receivable between the date of issuance and December 31, 2005 has been
         recorded as an element of comprehensive income/(loss) of $8,242,104. As
         an initial entrance amount in the equity swap transaction, Cogent
         Capital Corp. has received 1,381,579 common shares of the Company (See
         Note 21 - Stockholder's Deficiency and Recapitalization).

NOTE 23 INCOME TAXES
--------------------

         For Federal income tax purposes, the Company has net operating loss
         carryforwards of approximately $10,500,000, which expire at various
         times through 2025. Annual utilization of the net operating loss
         carryforwards may be limited due to ownership changes as defined under
         section 382 of the Internal Revenue Code.

         The Company's tax expense differs from the "expected" tax (benefit) for
         the years ended December 31, 2005 and 2004, computed by applying the
         statutory Federal tax rate of 35% to loss before taxes, as follows:

                                                 2005           2004
                                             -----------   -------------
                                                           (As Restated)

         Computed "expected" tax (benefit)   $  (684,000)   $(5,191,000)
         State tax (benefit), net of
           Federal tax effect                    (98,000)      (741,000)
         Permanent Differences                (3,260,000)     4,318,000

         Change in valuation allowance         4,042,000      1,614,000
                                             -----------    -----------
                                             $        --    $        --
                                             ===========    ===========

         The effects of temporary differences that gave rise to significant
         portions of deferred tax assets and liabilities at December 31, 2005
         are as follows:

         Deferred tax assets:
         Net operating loss carryforward              $4,200,000
         Impairment of goodwill                          447,000
         Accrued expenses                                263,000
         Stocks and warrants for services                728,000
         Capitalized funding costs-warrants              516,000
                                                      ----------
         Total gross deferred tax assets               6,154,000
         Less valuation allowance                     (6,154,000)
                                                      ----------
         Net deferred tax assets                      $       --
                                                      ==========

SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets
reported, if any, based on the weight of evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Management has determined that a valuation allowance of approximately $6.0
million at December 31, 2005 is necessary to reduce the deferred tax assets to
the amount that will more likely than not be realized.
The change in valuation allowance during 2005 and 2004 was an increase of
$4,402,000 and $1,614,000, respectively.

NOTE 24 - SUBSEQUENT EVENTS:
---------------------------

         In January 2006, 9.22 shares of Series B preferred stock was converted
         to 317,105 shares of restricted common stock at the request of the
         holders.

         The Company also issued 550,000 shares of restricted common stock,
         valued at $0.27, to debt holders in consideration of deferring payments
         until March 31, 2006.

         The Company issued 50,000 shares of restricted common stock to a
         consultant for services; the Company valued the shares at $0.24.

         In addition, the Company also issued 75,000 shares of restricted common
         stock in consideration of a sixty-day promissory note yielding $100,000
         in gross proceeds; the shares were valued at $0.34. As collateral for
         the note, the Company issued 250,000 restricted shares and valued them
         at par.

         There were also 123,000 common shares issued, previously recorded as
         issuable.

                                      F-39
<PAGE>

                          XSTREAM BEVERAGE NETWORK INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2005


         In February 2006, the Company issued 200,000 common shares to a
         consultant pursuant to the terms of a six month agreement; the shares
         were valued at $0.36 per share.

         The Company issued 75,000 shares of restricted common stock in
         consideration of a sixty- day promissory note yielding $100,000 in
         gross proceeds; the shares were valued at $0.43. As collateral for the
         note, the Company issued 250,000 restricted common shares and valued
         them at par.

         The Company issued 25,000 shares of restricted common stock to a
         consultant pursuant to the terms of a six-month agreement; the shares
         were valued at $ 0.24.

         The Company issued 125,000 shares of restricted common stock to a
         consultant pursuant to the terms of a six-month agreement; the shares
         were valued at $0,24.

         The Company also entered into a twelve month consulting agreement. In
         consideration for the services, the Company issued 25,000 shares of
         restricted common stock valued at $0.36.

         In addition, the Company also issued 32,500 shares of restricted common
         stock in consideration of a sixty-day promissory note yielding $50,000
         in gross proceeds; the shares were valued at $0.43. As collateral for
         the note, the Company issued 125,000 restricted shares and valued them
         at par.

         In February 2006, 3.04 shares of Series B preferred stock was converted
         to 200,000 shares of restricted common stock at the request of the
         holders and shares were valued at par.

         In March 2006, the Company issued 675,000 common shares to a consultant
         pursuant to the terms of a nine month agreement and the share were
         valued at $0.42.

         The Company also issued 25,000 shares to the holder of a note to defer
         payments until May 15, 2006. The shares were valued at $0.37.

         The Company also issued 300,000 shares of restricted common stock in
         consideration of a sixty-day promissory note yielding $200,000 in gross
         proceeds; the shares were valued at $0.30. As collateral for the note,
         the Company issued 1,000,000 restricted shares and valued them at par.

         The Company issued 330,000 shares for extending the terms of an
         agreement to June 1, 2006; the shares were valued at $0.37.

         The Company issued 135,000 Shares of restricted common stock for a
         ninety-day agreement; the shares were valued at $0.34.

         The Company also entered into a six-month consulting agreement and
         issued 7,000 valued at $0.42.

         The Company also issued 2,500,000 shares of restricted common stock,
         with 1,000,000 shares being held in escrow, to holders of term loans
         for the deferral of payments until May 10, 2006; the shares were valued
         at $0.42.

         On April 7 , 2006, the Company completed a Securities Purchase
         Agreement with Laurus Master Fund. dated as of March 31, 2006, to
         refinance certain existing obligations and to provide the Company with
         additional financing. The financing was structured through the sale of
         three promissory notes by the Company; a secured non-convertible
         revolving note in the principal amount of $4,000,000, a secured
         convertible term note in the principal amount of $2,000,000, and a
         secured non-convertible term note in the principal amount of
         $4,000,000. The aggregate principal amount of the Notes is $10,000,000.

         Xstream Beverage Network, Inc. executed a lease commencing March 13,
         2006 for a term of five years expiring on March 31, 2011. The space
         consists of approximately 4,900 square feet and the monthly price per
         square foot is as follows:

                 Year 1                   $12.50                     $3,713
                 Year 2                   $15.00                     $4,455
                 Year 3                   $17.50                     $4,198
                 Year 4-5                 $20.00                     $5,940

                                      F-40